Chapter:	112	Title:	Inland Revenue Ordinance	Gazette Number:	E.R. 1 of 2012
Section:	16G	Heading:	Capital expenditure on the provision of a prescribed fixed asset	Version Date:	09/02/2012

(1) Notwithstanding anything in section 17, in ascertaining the profits of a person from any trade, profession or business in respect of which the person is chargeable to tax under this Part for any year of assessment, there shall, subject to subsections (2) and (3), be deducted any specified capital expenditure incurred by the person during the basis period for that year of assessment.
(2) Where a prescribed fixed asset in respect of which any specified capital expenditure is incurred is used partly in the production of profits chargeable to tax under this Part and partly for any other purposes, the deduction allowable under this section shall be such part of the specified capital expenditure as is proportionate to the extent of the use of the asset in the production of the profits so chargeable to tax under this Part.
(3) (a) Notwithstanding the exclusion relating to the sale of capital assets contained in section 14, where any prescribed fixed asset in respect of which any specified capital expenditure has been allowed as a deduction to any person under this section in ascertaining the profits from a trade, profession or business is thereafter sold by him-

(i) subject to subparagraph (ii), the proceeds of sale;
(ii) if the deduction has been allowed in accordance with subsection (2), such part of the proceeds of sale as is proportionate to the extent to which the specified capital expenditure has been allowed as a deduction in respect of that asset in accordance with that subsection,
shall, to the extent that the proceeds of sale or the part of the proceeds of sale, as the case may be, is not otherwise chargeable to tax under this Part and does not exceed the amount of the deduction, be treated as a trading receipt arising in or derived from Hong Kong of the trade, profession or business accruing at the time of the sale or, if the sale occurs on or after the date on which the trade, profession or business is permanently discontinued, accruing immediately before the discontinuance.
(b) For the purposes of paragraph (a), where any prescribed fixed asset in respect of which any specified capital expenditure has been allowed as a deduction to any person under this section in ascertaining the profits from a trade, profession or business is thereafter destroyed, the asset shall be treated as if it had been sold immediately before the destruction thereof, and any insurance moneys or other compensation of any description received by the person in respect of the destruction and any moneys received by him in respect of the remains of the asset shall be treated as if they were proceeds of that sale.
(c) Where, in relation to the sale of a prescribed fixed asset, which is referred to in paragraph (a)-
(i) the buyer is a person over whom the seller has control;
(ii) the seller is a person over whom the buyer has control;
(iii) both the seller and the buyer are persons over both of whom some other person has control; or
(iv) the sale is between a husband and his wife, not being a wife living apart from her husband,
the Commissioner shall, if he is of the opinion that the sale price of the asset does not represent its true market value at the time of the sale, determine such true market value, and the amount so determined shall, for the purposes of this subsection, be deemed to be the proceeds of sale of the asset.
(d) For the purposes of this subsection, the reference to the time of the sale, in relation to a prescribed fixed asset, shall be construed as a reference to the time of completion of the sale of the asset, or the time when possession of the asset is given, whichever is earlier.

(b) The specified capital expenditure deemed to have been incurred by a person in relation to any machinery or plant under paragraph (a) shall be the capital expenditure incurred on the provision of that machinery or plant, as reduced by the aggregate of-
(i) the amount of the initial allowances, if any, under section 37(1), 37A(1) or 39B(1); and
(ii) the amount of the annual allowances, if any, under section 37(2), 37A(3) or 39B(2),
made to the person in respect of the capital expenditure in all prior years of assessment.
(c) (i) Paragraph (a) shall only apply to a person where the person has elected in writing that the paragraph shall so apply to him, at any time before the expiration of one month after the date on which a notice of the assessment made in respect of the person for the year of assessment commencing on 1 April 1998 under section 59 is given under section 62.
(ii) An election under subparagraph (i), once made, is irrevocable.

(a) such of the machinery or plant specified in items 16, 20, 24, 26, 28, 29, 31, 33 and 35 of the First Part of the Table annexed to rule 2 of the Inland Revenue Rules (Cap 112 sub. leg. A) as is used specifically and directly for any manufacturing process;
(b) computer hardware, other than that which is an integral part of any machinery or plant;
(c) computer software and computer systems,
but does not include an excluded fixed asset;

(a) capital expenditure that may be deducted under any other section in this Part;
(b) capital expenditure incurred under a hire-purchase agreement.