The Federal Inland Revenue Service (FIRS) recently issued Information Circular No.: 2021/20 (“the Circular”) on extension of the meaning of “in use”, pursuant to the provisions of Paragraph 16 of the Second Schedule to the Companies Income Tax (CIT) Act Cap. C21 LFN 2004 (as amended). 

The Circular provides guidelines on claim of capital allowances (CA) on capital work-in-progress (CWIP) and assets in periods of temporary disuse, in line with Paragraph 16 (1 and 2) of the Second Schedule to the CIT Act

We have provided below, a summary of the key aspects of the Circular:

1. Definition of CWIP

The Circular defines CWIP as “the total accumulation of cost incurred on owned assets on which construction or production has not been completed as at the date of Statement of Financial Position (i.e., as at balance sheet date).” Therefore, the cost incurred on such assets may not be recognised as qualifying capital expenditure (QCE) until the asset is ready for use.

2. Definition of asset in a state of temporary disuse

The Circular provides that an asset will be deemed to be in a state of temporary disuse where:

  • the asset is undergoing major repairs;
  • the company that owns the asset is dormant or in a state of recession and the asset is in a state of redundancy; and
  • there is a force majeure due to unforeseen circumstances.

3. Conditions for claiming CA on CWIP and asset in temporary disuse

The Circular outlines the following conditions for a company to claim CA on CWIP:

  • The expenditure must relate to qualifying building; manufacturing industrial plant; construction plant (excluding furniture and fittings); plant (excluding furniture and fittings); mining; plantation equipment; ranching and plantation; agricultural plant; and housing estate
  • The asset must be for the purpose of the trade or business
  • The cost on each asset is recorded in separate work-in-progress accounts

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