INDUSTRIAL

BUILDING
ALLOWANCE
TOPIC 2
THE BASIC FORMULA
QBE OF IB X % (IA or AA)
 The IBA Percentage (%)
Page 370 – 373 [summary]

Initial Annual
No
Allowance Allowance
1 10% 3%
2 10% 6%
3 40% 3%
4 Nil 10%
What is IB
• Page 350 – 355 [discussion of IB]
• 2.0 Industrial building (para 63, Sch 3)
• 3.0 Factory (para 64)
• Workshop & warehouse for trading
companies/retail shop is not factory, i.e.
not IB (example 19.1 & 3.1)
• Within the same curtilage - storage
incidental to manufacturing activities
 QBE (page 356)

Specific discussion on
(iii) cost of demolition
(v) interest expense
(viii) legal charges
• Land acquisition
• Loan acquisition
• Building acquisition
 THE WORKING
Application of 75% rule A. Find the % of L against E:
Example 19.4 (page 357, CKF2021) = L/E x 100
= 260,000/345,000 x 100
= 75.36%
B. Conclude the finding:
RM Since the COPS (L) is
greater than 75% of
Cost of machinery (P) 85,000 Aggregate Cost (E),
therefore the aggregate
Cost of Preparing Site (L) 260,000 cost (E) of RM345,000 is
deemed to be qualifying
Aggregate cost (E) 345,000 building expenditure.
 THE WORKING
Application of 75% rule A. Find the % of L against E:
Example 19.5 (page 358, CKF2021) = L/E x 100
= 200,000/300,000 x 100
= 66.67%
B. Conclude the finding:
RM Since the COPS (L) is
lower than 75% of
Cost of machinery (P) 100,000 Aggregate Cost (E),
therefore the aggregate
Cost of Preparing Site (L) 200,000 cost (E) of RM300,000 ≠
QBE, P = QPE & no tax
Aggregate cost (E) 300,000 relief for the COPS (L).
Application of 10% rule

SPACE OCCUPATION Rule #1

(A Mixed of IB & Non IB) If the percentage of Non IB is ≤10% of total
Non IB Usage/Total Space x 100 space of an IB, the Non IB percentage is
deemed to be insignificant, therefore
QBE=100%, i.e. the whole building would be
treated as an IB regardless of its usage.
Application of 10% rule

SPACE OCCUPATION Rule #2

(A Mixed of IB & Non IB) If the percentage of space used as Non IB is
Non IB Usage/Total Space x 100 >10% of total space of an IB, the Non IB
space is deemed to be significant, therefore
total QBE of an IB would be apportioned
based on the relevant IB usage percentage.
 DEC2018/Q2A
Workings:
1) Compute the percentage of the Non IB space
Let’s look at = 3,120/19,500 x 100
= 16%
an example 2) Made conclusion (to use 100% of QBE OR to
apportion the QBE)
Since the Non IB % is greater that 10% of the
whole building (@16%), QBE will be
apportioned @ 84%.
3) State the final QBE figure
= QBE x 84%
= xx,xxx
 MAR2017/Q2A
Workings:
1) State the percentage of the Non IB space
Let’s look at Administration building = Non IB @15%
(usage as factory & research building are both
an example considered as IB)
2) Made conclusion (to use 100% of QBE OR to
apportion the QBE)
Since the Non IB % is greater that 10% of the
whole building (@15%), QBE will be
apportioned @ 85%.
3) State the final QBE figure
= QBE x 85%
= xx,xxx
Application of 10% rule for IB with
rented space

SPACE OCCUPATION Rule #3

(A Mixed of IB & Rented Space) If the percentage of rented space ≤ 10% of
Rented space/Total Space x 100 total space of an IB, the rented space is
deemed to be insignificant, therefore
QBE=100%, i.e. the whole building would be
treated as an IB regardless of its usage.
Application of 10% rule for IB with
rented space

SPACE OCCUPATION Rule #4

(A Mixed of IB & Rented Space) If the percentage of rented space >10% of
Rented space/Total Space x 100 total space of an IB, the rented space is
deemed to be significant, therefore total
QBE of an IB would be apportioned based on
the relevant IB usage percentage.
 JAN2018/Q2A
Workings:
1) State the percentage of the rented space
Let’s look at 5%
2) Made conclusion (to use 100% of QBE OR to
an example apportion the QBE)
Since the rented space % is less than 10% of
the whole building (@5%), QBE = 100%
3) State the final QBE figure
= xx,xxx
Find the QBE:
Dec2018/Q2
Mar2017/Q2
Jan2018/Q2
Initial Allowance
(pg.360,CKF2021)

i. Incurred QBE on the construction or purchase of

an IB.
ii. The building was in use or about to be used* as
an IB for the purpose of business.
iii.The person owned the building at the end of the
basis period*.
a) Disposed but used sometime for business
b) Renovation on rented premises by tenant
(relevant interest; CKF2021,pg.366)
Specific Discussion #1 On Initial Allowance
(Example 1: completed & use in business)

Status/YA YA3 YA4 YA5

Completed × ✓
Use in business × ✓ ✓
Claim of IA × ✓ ?
Specific Discussion #1 On Initial Allowance
(Example 2: completed & about to be used in business)

Status/YA YA3 YA4 YA5

Completed × ✓
Use in business × × ✓
Claim of IA × ✓ ?
Specific Discussion #1 On Initial Allowance
(What if?)

Status/YA YA3 YA4 YA5

Completed ✓
Use in business × × ✓
Claim of IA ? ? ?
Specific Discussion #1 On Initial Allowance
(Example 3: Disposal of IB before the year end)

Status/YA YA 2020
Owned by business 5 months ×
Use in business ✓ ×
Claim of IA ✓ (12 months)
Annual Allowance
(CKF2021; pg.360)
i. Has incurred QBE on the construction
or purchase of an IB (RE is still
available)
ii. The person owned the building at the
end of the basis period*.
iii.The building was in use as an IB for
the purpose of business.
Notes: Notional allowance will be
introduced in the absence of annual
allowance in any YA.
Effects: Reduce the RE but will not reduce
the adjusted business income value.
Notional Allowance
If the building was temporarily not
in use for business purposes, the
company is not entitled to claim
any AA. However, notional
allowance, NA, (calculated using
the AA rate) would be introduced
to reduce the residual expenditure
of the building during the non-
usage period.
Specific Discussion #1 On Annual Allowance
(What if?)

Status/YA YA3 YA4 YA5

Completed ✓
Use in business ✓ × ✓
Claim of IA ✓ × ?
Claim of AA ✓ ×
Notional Allowance ✓
• The sale, transfer or
assignment of the relevant
interest in the IB
• End of concession
• Reversion of a leasehold
• Demolition of building
• Ceased to be used as an IB
Disposal value (para 62, Sch 3)
[CKF2021;pg.368]

• General rule
• Market value vs. net proceed, WIH
• Insurance compensation
• Market value vs. compensation
received, WIH
• Demolished
• ‘negative value’, added to RE,
increase balancing allowance
IA A. Completion date
YA2014
= 01/11/2013 [YA: 2014]
AA
YA2014 B. Use in business
= 01/02/2014 [YA: 2014]
C. Accounting/Basis period
= 01/07/Y1 – 30/06/Y2
 What
IA A. Completion date IF
YA?
= 01/11/2018 [YA: ?]
AA
YA? B. Use in business
= 01/07/2019 [YA: ?]
C. Accounting/Basis period
= 01/07/Y1 – 30/06/Y2
 What
IA A. Completion date IF
YA?
= 01/11/2018 [YA: 2019]
AA
YA? B. Use in business
= 01/07/2019 [YA: 2020]
C. Accounting/Basis period
= 01/07/Y1 – 30/06/Y2
 What
IA A. Completion date IF
YA2019
= 01/11/2018 [YA: 2019]
AA
YA2020 B. Use in business
= 01/07/2019 [YA: 2020]
C. Accounting/Basis period
= 01/07/Y1 – 30/06/Y2
•

Complete
your
workings:
Dec2018/Q2
Mar2017/Q2
Jan2018/Q2
THE END