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Balancing allowances and charges for industrial buildings and structures

Income Tax Act 1947

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—(1) Where any of the events referred to in subsection (1A) occurs while a building or structure is an industrial building or structure or after it has ceased to be one and —(a)any capital expenditure has been incurred on the construction of the building or structure before 1 January 2006; or(b)either —(i)any capital expenditure has been incurred on the construction of the building or structure on or after 1 January 2006; or(ii)a sale and purchase agreement for the building or structure was entered into on or after that date,then an allowance or a charge, to be known as a “balancing allowance” or a “balancing charge” is, in the circumstances mentioned in this section, to be made to or (as the case may be) on the person entitled to the relevant interest immediately before that event occurs for the year of assessment in the basis period for which that event occurs.(1A) The events referred to in subsection (1) are —(a)the relevant interest in the building or structure is sold;(b)that interest, being a leasehold interest, comes to an end otherwise than on the person entitled thereto acquiring the interest which is reversionary thereon;(c)the building or structure is demolished or destroyed or, without being demolished or destroyed, ceases altogether to be used.(2) In the case referred to in subsection (1)(a), no balancing allowance or balancing charge may be made to or on any person for any year of assessment by reason of any event occurring after the end of the fiftieth year after that in which the building or structure was first used.(3) No balancing allowance may be made to any person —(a)on the sale of the relevant interest in the building or structure unless the person proves to the Comptroller’s satisfaction that the value of the building or structure to the person is less than —(i)in the case referred to in subsection (1)(a), the amount of the capital expenditure incurred on the construction of the building or structure reduced by the amount of any initial and annual allowances made (including an amount of 3% of the capital expenditure for each year in which no initial or annual allowance was made); or(ii)in the case referred to in subsection (1)(b), the amount of the capital expenditure incurred by the person on the construction or purchase of the building or structure (as the case may be) reduced by the amount of any initial and annual allowances made (including an amount of 3% of the capital expenditure for each year in which no initial or annual allowance was made); or(b)where the relevant interest in the building or structure is not sold but the building or structure is or would be redeveloped for any use other than as an industrial building or structure.(4) Where there are no sale, insurance, salvage or compensation moneys, or where the residue of the expenditure immediately before the event exceeds those moneys, a balancing allowance is to be made and the amount thereof is the amount of the residue or (as the case may be) of the excess thereof over the moneys.(5) If the sale, insurance, salvage or compensation moneys exceed the residue (if any) of the expenditure immediately before the event, a balancing charge is to be made and the amount on which it is made is an amount equal to the excess or, where the residue is nil, to the moneys.(6) Despite anything in subsection (5) but subject to subsection (7), the amount on which a balancing charge is made on a person must not in any case exceed the aggregate of the following amounts:(a)the amount of the initial allowance (if any) made to the person in respect of the expenditure in question;(b)the amount of the annual allowances (if any) made to the person in respect of the expenditure in question.(7) Unless otherwise provided in this Act or the Economic Expansion Incentives (Relief from Income Tax) Act 1967, where, in the basis period for any year of assessment, the trade, for which purpose the industrial building is used, produces income that is exempt from tax as well as income chargeable with tax, and any balancing allowance or balancing charge arises to be made —(a)the balancing allowance must be made against each income for that year of assessment in such proportion as appears reasonable to the Comptroller in the circumstances; and(b)such proportion of the balancing charge is exempt from tax as appears reasonable to the Comptroller in the circumstances.(8) Where allowances have been made under both sections 16 and 18C in respect of any industrial building or structure, then, for the purposes of subsections (4) and (5), the sale, insurance, salvage or compensation moneys in respect of that building or structure is such amount of those moneys as the Comptroller determines to be reasonable in the circumstances.(9) Where the relevant interest in a building or structure in respect of which allowances have been made under section 16 is transferred at less than the open‑market price, then for the purpose of determining the amount of any balancing charge under subsection (5), the relevant interest in the building or structure is treated as if it had been sold for an amount equal to the open‑market price of the building or structure as at the date of transfer.

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