Tax Education: Meaning of disposal and value of a QCE at disposal

For the purpose of Capital Allowance, the various income tax laws; Companies Income Tax Act Cap C21 LFN 2004 (as amended), Petroleum Profit Tax Act Cap P18 and Personal Income Tax Act Cap P8 LFN 2004 (as amended), provides the meaning of the following:

  • Disposal
  • Value of a Qualifying Capital Expenditure (QCE) at disposal

For the purpose of this education, focus will be on the CITA. However, the 2 other income tax laws also have similar provisions

DISPOSAL

The Act provides the following for the purpose of the Second Schedule to the Act:

(a) A building, structure or works of a permanent nature is disposed of if any of the following events occur-
(i) the relevant interest therein is sold; or
(ii) that interest, being an interest depending on the duration of a concession, comes to an end on the coming to an end of that concession; or
(iii) that interest, being a leasehold interest, comes to an end otherwise than on the person entitled thereto acquiring the interest which is reversionary thereon; or
(iv) the building, structure or works of a permanent nature are demolished or destroyed or, without being demolished or destroyed, cease altogether to be used for the purposes of a trade or business carried on by the owner thereof

(b) Plant, machinery or fixtures are disposed of if they are sold, discarded or cease altogether to be used for the purposes of a trade or business carried on by the owner thereof;


(c) Assets in respect of which qualifying mining expenditure is incurred are disposed of if they are sold or if they cease to be used for the purposes of the trade or business of the company incurring the expenditure either on such company ceasing to carry on such trade or business or on such company receiving insurance or compensation monies therefore.

VALUE OF A QCE

The Act provides that:

(a) The value of an asset at the date of its disposal shall be the net proceeds of the sale thereof or of the relevant interest therein, or if it was disposed of without being sold, the amount which, in the opinion of the Service, such asset or the relevant interest therein, as the case may be, would have fetched if sold in the open market at that date, less the amount of any expenses which the owner might reasonably he expected to incur if the asset were so sold.
(b) If an asset is disposed of in such circumstances that insurance or compensation monies are received by the owner thereof, the asset or the relevant interests therein, as the case may be, shall be treated as having been sold and as though the net proceeds of the insurance or compensation monies were the net proceeds of the sale thereof.
(c) The provisions of (a) shall have effect-
(i) in relation to any asset or the relevant interest therein disposed of not being by way of bargain made at arm’s length; or
(ii) where the sale is between persons who are related to each other or between persons both of whom are controlled by some other person or one of whom has control over the other.

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