Raymond Yeung Tax Consultant former Assessor of Inland Revenue Department 前稅局評稅主任楊輝洪

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Industrial Building Allowance

Qualifying expenditure 

Only the capital expenditure in respect of the construction of the building qualifies the allowance. The cost of site is specifically excluded by Section 40 of the Inland Revenue Ordinance. 

The construction of the building does not include the cost of site or preparation and leveling of land. But it can include expenditure on work done preparatory to laying foundations, laying drains, sewers and water-mains to serve the building. The part of construction cost to be reimbursed by any grant or subsidy should be excluded. However, any interest or commitment fee incurred in respect of a loan obtained for the building can be added to the construction cost.

It is advisable to separate the cost of plant and machinery (e.g. central air-conditioning, lift machinery) from the cost of construction of the building. This is because plant and machinery can attract more generous depreciation allowances.

Because of the requirement for “expenditure on construction”, instead of on the provision of the asset as in the case of plant and machinery, the price paid for the a second-hand building does not by itself give rise to IBA. 

“Expenditure incurred” means the expenditure for which the claimant has become legally liable to pay. 

If a qualifying trade is established, all part of the building or structure used for that trade will qualify except the following parts: dwelling house (other than that for manual worker), retail shop, showroom, hotel or office. Nevertheless, if the expenditure on the above non-qualifying parts does not exceed 10% of the total expenditure of the whole building, the exception will be disregarded --- in that case, the whole building, including the non-qualifying parts, will be accepted as an industrial building. 

Although the storage forming part of a non-qualifying trade cannot attract the allowance, a trade of storage can. 

See qualifying person for more about IBA.


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