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

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Disposal of industrial building

Balancing adjustments have to be made if any of the following occurs:

  1. the relevant interest in the building is sold; or

  2.  that interest, being a leasehold interest, comes to an end; or

  3.  the building is demolished, destroyed, or ceases altogether to be used.

The balancing adjustment is to adjust the total allowances to "the cost of construction less the disposal proceeds". If the total allowances granted is less than "the cost of construction less the disposal proceeds", the adjustment (that is the difference) will be a balancing allowance --- a deduction from assessable profits. Otherwise, the adjustment will be a balancing charge --- a claw back of the excessive allowances granted. 

In practice, the balancing adjustment is usually computed by comparing the residue of expenditure before sale with the sales price for the building.

Residue of expenditure is defined in Section 40 as the original cost of the building as reduced by any initial or annual allowance, or the case of subsequent owner: reduced by balance allowances or increased by balancing charges. A notional annual allowance of 4% will have to be made for those years in which the building is not used as an industrial building.

No balancing charge or allowance is to be made unless the building is an industrial building at the time of the event.  

No balancing allowance is granted if the building is demolished for purposes unconnected with the trade for which the building is used: for example, where the building is demolished for a property re-development.  

An illustration showing computation of balancing adjustments


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