CAPITAL ALLOWANCES

The cost of equipment, tools, and other items used by the taxpayer to produce income is deductible in four equal yearly allowances (including finance charges). Where the asset was kept for less than 12 months, there is no need for apportionment.

An initial allowance of 25% of the construction cost is allowed for industrial buildings (including hotels) that are built and used by the taxpayer to generate revenue in the year they are put into service. For each year after the year of building, a 25% annual allowance is deductible. The same deductions apply to additions to existing structures, but not to alterations or repairs. It's essential to remember that the allowance is based on construction costs rather than acquisition costs. The allowances are set at 5% of the expense in the latter scenario.

Mining exploration expenses paid prior to the start of production are fully deductible against mine revenue in the first year of production. Subsequent development costs are currently deducted in the year they are incurred.

Capital allowances may also be deducted with respect to leasehold improvements.

A recovery or recoupment of previously claimed allowances should be included in a taxpayer's gross revenue if the allowance is recovered or recouped through disposal. The recoupment is based on previously awarded capital allowances.

Expenditure is deducted from income tax when it is spent in the generation of income or for the purposes of trade. Expenditure on the purchase or building of fixed assets known as property, plant, and equipment (PPE) is not deducted but is written off against taxable income through capital allowances over the PPE's tax life. Commercial buildings, industrial buildings, staff houses, farm improvements, implements, equipment or utensils, motor vehicles, and computer software are among the assets ranked for capital allowances. Capital allowances are available to all people receiving income from trade and investment, including sole traders, independent contractors, non-executive directors, partners, companies, and trusts with taxable income, etc. 

Capital allowances is the practice of allowing a taxpayer to get a tax relief on capital expenditure by allowing it to be expensed against its yearly pre-tax income. Assets must be utilized within the production of income or for the purposes of trade conjointly held at the end of the year of assessment. If an asset is constructed or acquired in one tax year then put into use within the following year, capital remittances are as it were claimed within the year the resource is put into use. Capital expenditure includes the cost of acquiring or construction of the resource itself, initial set up, installation, programming, travel cost to buy the asset, freight charges, travel insurance, irrecoverable VAT, borrowing cost, foreign trade losses in regard of the asset etc. There are two methods of claiming capital expenditure, to be specific Special Initial Allowance (SIA) and Wear & Tear (W&T). 

SIA is an investment allowance allowed upon election on constructed buildings (other than commercial), additions, alterations or improvement to the said buildings (other commercial buildings) and movable purchased. The Act provides for 90% de minimis utilize rule, meaning the property must be utilized at least 90 percent within the generation of income or for purposes of trade to be allowed SIA. The current rate for SIA is 25% for big businesses and 50% for SMEs within the first year. After the first year, accelerated wear & tear is 25% per annum for three years in the case of big businesses and 25% per annum for 2 years for SMEs. SIA is never apportioned, either the taxpayer qualifies or does not qualify for SIA at all. It is also computed based on cost. Assets under a finance lease qualify for SIA in the hands of the lessee. 

Wear and tear is allowed in all cases where SIA has not been allowed. It is computed on cost of immovable assets purchased or constructed by the taxpayer, additions, alterations and improvements made to immovable properties and on movable property (including on computer software acquired or developed). Wear and Tear is computed on the written down value (tax value) of the asset for movable assets. Wear and tear is not an elective allowance, taxpayers automatically qualifies it in cases where SIA has not been granted. Unlike SIA, wear and tear can also be given on inherited or assets acquired through donation. The rate of wear and tear on immovable property is 5% per annum (2.5% on cost for commercial buildings) and is never apportioned. The general rate of wear and tear on movable property and computer software is 10% on written down value, exceptional cases include motor vehicles where the rate is 20% on written down value. Wear and tear is allocated within the case of mobile property used partly for commerce and private by the proprietors of the business. Accelerating capital allowances allows taxpayers to limit their tax liabilities, making SIA a ideal method to claim wherever possible. Be that as it may, it isn't beneficial for a taxpayer with assessed losses which are about to expire to choose special initial allowance since it'll result in increased assessed loss which may not be recovered.

Since certain expenditure also benefits employees among them passenger motor vehicles and employee houses (staff housing), cost ceilings are imposed on it qualifying for capital allowances. Income Tax Act defines ‘staff housing’ inter alia, as any ‘permanent building’ used by the taxpayer for the purposes of his trade entirely or mainly for the housing of his employees, but does not incorporate a residential unit the erection of which commenced on or after 1 January 2009 whose cost exceeds ZWL 12,500,000.00/USD25,000.00 . A “residential unit” means an apartment, flat, house whether detached, semi-detached or terraced, or similar unit of private accommodation. A unit that exceeds the said threshold is qualified for purposes of capital allowances. A passenger motor vehicle may be a motor vehicle propelled by mechanical or electrical power and intended or adjusted for use or capable of being used on streets mainly for the conveyance of passengers. These are luxury type of motor vehicles to be specific station wagons, domain cars, vans, 4×4 double cabs excluding vehicles used for passing on passengers for pick up, used by hotel operators to convey their guests, carrying 15 or more passengers excluding the driver, a vehicle purchased by a taxpayer for leasing under a finance lease, caravans and ambulances. Taxpayers are free to purchase passenger motor vehicles of their choice at any cost however, for purpose of capital allowances use more than ZWL5,000,000.00 per passenger motor is disregarded. 

Capital allowances :