Illustrative Example

The contents of this page are based on the Inland Revenue (Amendment) (Tax Deductions for Leased Premises Reinstatement and Allowances for Buildings and Structures) Bill 2024 which is subject to scrutiny by the Legislative Council. Readers are reminded to be alerted to the latest development upon enactment of the Bill.

Owner A incurred cost of $250 million on the construction of an industrial building and started to use the building on 1 April 1970. It is assumed that no initial allowance was claimed by Owner A.
Owner A sold the building to Owner B for $300 million on 1 April 2017.
Owner B sold the building to Owner C for $400 million on 1 April 2030.
Owners A, B and C all close their accounts on 31 March. Owners B and C acquired the building for business use since the year of acquisition.

Owner A		$ million
1/4/1970	Cost of construction	250
1970/71 - 1994/95	Annual allowance ($250 million x 1/25 x 25)	(250)
1/4/2017	Residue of expenditure immediately before the sale	0
	Sale proceeds	(300)
	Balancing charge on Owner A (limited to the aggregate of allowances granted)	250

Owner B
1/4/2017	Residue of expenditure immediately before the sale	0
	Balancing charge on Owner A	250
	Residue of expenditure immediately after the sale	250
2017/18 - 2023/24	Annual allowance	0¹
2024/25 - 2029/30	Annual allowance ($250 million x 4% x 6)	(60)
1/4/2030	Residue of expenditure immediately before the sale	190
	Sale proceeds	(400)
	Balancing charge on Owner B (limited to the aggregate of allowances granted)	60

Owner C
1/4/2030	Residue of expenditure immediately before the sale	190
	Balancing charge on Owner B	60
	Residue of expenditure immediately after the sale	250
2030/31	Annual allowance ($250 million x 4%)	(10)
		240

¹	No annual allowance was granted to Owner B as the 25-year period after the year of first use has lapsed.