Profits Tax - Repairs
and replacement expenditure
16(1)(e) allows cost of repairs to premises, plant, machinery,
implements, utensils or articles used in earning assessable
Revenue Rule No. 2 defines “implements, utensils or articles” to
include the following: belting, crockery and cutlery, kitchen
utensils, linen, loose tools, soft furnishings, surgical and
dental instruments, tubes for x-ray and infra-red machines.
expenditure should be distinguished from improvement expenditure
because the former is allowable while the latter is non-allowable
deduction under Section 17(1)(d).
Generally speaking, "repair" means reverting the asset to its
original capability or function, whereas "improvement" means a new
function or a significant enhancement made to the original asset.
In practice, most repairs may involve some elements of improvement
--- if the elements of improvement is minor or only incidental to
the repairing, the whole amount will be deductible without
separating the cost of improvement from the cost of repair.
improvement expenditure satisfies other provisions in the
Inland Revenue Ordinance, such as
hardware and software,
manufacturing... etc., it is still deductible.
Furthermore, it can qualify
depreciation allowances if such
expenditure is related to "plant and machinery".
Replacement or repairs expenditure for “implements, utensils or
articles” is allowable deduction.