Capital Allowance: Extension of the meaning of “in use”

Paragraph 8 of the Second Schedule to the Companies Income Tax Act Cap C21 LFN 2004 (as amended) provides that capital allowance shall only be granted to a company in a year of assessment if at the end of the year, the company is the owner of the asset and that the asset was in use for the purposes of the company’s trade or business. In the words of the laws:

An initial or an annual allowance in respect of qualifying expenditure incurred in respect of any asset shall only be made to a company for a year of assessment if at the end of its basis period for that year it was the owner of that asset and that asset was in use for the purposes of a trade or businesses carried on by that company.

However, Paragraph 16 of the Schedule extends the meaning of an asset being “in use”.  The laws provides the following:

  1. For the purposes of this Schedule, an asset shall be deemed to be in use during a period of temporary disuse;
  2. For the purposes of paragraphs 6 (initial allowance), 7 (annual allowance) and 8 (Asset in use) of this Schedule-
  • An asset in respect of which qualifying expenditure has been incurred by the company owning such asset for the purposes of a trade or business carried on by it shall be deemed to be in use, for the purposes of that trade or business, between the dates hereinafter mentioned, where the FIRS is of the opinion that the first use to which the asset will be put by the company incurring such expenditure will be for the purposes of that trade or business.
  • The said dates shall be taken to be the date on which such expenditure was incurred and the date on which the asset is in fact first put to use.

Nevertheless, the extant law further provides that where any allowances have been given in consequence of the above and the first use to which such asset is put is not for the purposes of such trade or business, all such additional assessments shall be made as may be necessary to counteract the benefit obtained from the giving of any such allowances.

In other words, if an allowance has been granted on an asset yet to be put into use, on the opinion that the first use of the asset would be for the company’s trade or business, but the asset is now put into other use other than for the company’s trade or business, the allowances already granted would be withdrawn and additional assessments shall be made as may be necessary.

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