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On 10th November 2021, the Federal Inland Revenue Service (FIRS) issued a fresh Information Circular on Extension of the Meaning of “In Use”[1] (“the Circular”). The Circular was issued to provide clarification and guidelines on the application of Paragraph 16 of the Second Schedule to the Companies Income Tax Act (CITA)[2] as it pertains to the meaning of the term “in use” for claims of Capital Allowance (CA). The Circular specifies requirements for granting CA on an asset during a period of “temporary disuse” and when an asset is a “capital work-in-progress”.

As a background, paragraph 16 (1) & (2) of the Second Schedule to CITA allows a company to claim CA on either an asset in a state of temporary disuse or on an asset which is yet to be used but whose first use will be for the purpose of the trade or business, subject to the approval of the FIRS.[3] Capital Allowance is a claim for tax relief by companies against assessable profits when computing their tax liabilities. It is granted to companies that prove that they have incurred qualifying capital expenditure (QCE) for the purpose of a trade or business to generate taxable income in line with the Second Schedule to CITA.[4]

Depreciation is a financial accounting term that describes a means of spreading the total cost of an asset used up in an accounting period.[5] Depreciation suggests disuniformity of tax rules because there are different methods of calculating it. Thus, making depreciation an allowable expense would feature a disuniform, imbalanced, and chaotic corporate tax environment with different depreciation values for different corporates on similar assets due to dependence on different styles of calculating depreciation. Expectedly then, under Nigerian tax law, it is not an allowable expense; it is not considered as part of a company’s taxable profit.

To compensate corporate taxpayers for the use of assets to make profits, CA was introduced in lieu of depreciation, to ensure uniformity and consistency, characterized by standardized statutory rates applicable to all corporate taxpayers.

This article provides key highlights on the Circular especially as it pertains to assets in temporary disuse and assets under the ambit of capital work-in-progress.

Highlights of the Guidelines


  1. Capital Expenditure: This is money spent by a company in acquiring or maintaining assets meant for production towards making taxable income.
  2. Qualified Capital Expenditure (QCE): as the name implies, they are assets which qualify for a claim for capital allowance.
  3. Initial Allowance (IA): First category of allowance claimable in respect of a QCE. It is a one-off grant in the year of assessment in which the QCE is first acquired for production processes.
  4. Annual Allowance (AA): This is a relief claimable by a company based on the cost of the asset less IA.
  5. Capital Work-in-Progress (CWIP): This refers to the aggregate (value) of costs incurred to-date on an asset owned by a company on which construction or production has not been completed.
  6. Tax Written Down Value (TWDV): Expenditure (of an asset) remaining after capital allowances for a period have been claimed.
  7. Temporary Disuse: An asset is in a state of temporary disuse where either of the following occur:
  • The asset is undergoing major repairs;
  • The company is dormant or in a state of recession and the asset is in a state of redundancy; or
  • There is force majeure due to unforeseen circumstances.[6]

Claiming CA on Assets under CWIP

The following conditions must be satisfied before a company can claim CA on CWIP:

  1. The asset must be owned by the taxpayer making the claim. The ownership here must also be for the relevant period.
  2. The asset expenditure must have been incurred by the taxpayer.
  3. The asset must be used, fully or partially, for the purpose of the trade or business. The asset must also pass the WREN test, that is, must have been wholly, reasonably, exclusively, and necessarily used for the purpose of the business.
  4. The asset must have a lifespan of more than 12 calendar months.

Furthermore, paragraph 16(2)(a) of the Second Schedule to CITA provides as follows:

“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 Service (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.[7]

In line with the discretion granted by CITA (as amended) to the FIRS in the above-excerpted provision, the following conditions must be fulfilled by an applicant company:

  1. The expenditure must be a QCE, which must relate to one of:
    1. Qualifying Building Expenditure
    2. Qualifying Manufacturing Industrial Plant Expenditure
    3. Qualifying Construction Plant Expenditure (excluding furniture and fittings)
    4. Qualifying Plant Expenditure (excluding furniture and fittings)
    5. Qualifying Mining Expenditure
    6. Qualifying Plantation Equipment Expenditure
    7. Qualifying Ranching and Plantation Expenditure
    8. Qualifying Agricultural Plant Expenditure
    9. Qualifying Housing Estate Expenditure.
  2. The asset must be for the purpose of the trade or business
  3. The cost on each asset must be separately warehoused in a separate CWIP account
  4. The construction or production of the asset must have been partially completed
  5. The completed portion of the asset must have been put to use.[8]

Therefore, where capital expenditure has been incurred on an asset which has not been used in generating taxable income for a relevant trade or business, such asset will not qualify as a QCE for CA purposes.[9]

Conversely, where capital expenditure has been incurred on an asset that is partially completed, and the completed part of that asset has been used in generating taxable income for a trade or business, such capital expenditure will be allowed as CA on the cost incurred to-date and will relate only to non-exempt income.[10]

Claiming CA on Assets in Temporary Disuse

Recall that IA is claimable on every QCE.[11] Further, a company may claim AA on the TWDV of the asset during the period of temporary disuse.[12]


The issuance of the Circular to refine the process and eligibility criteria for claiming CA is laudable. Previously, periods of temporary disuse of an asset are ignored in computing CA, despite the likelihood that such asset might have been deployed towards creating taxable income. The issuance of the Circular is in line with the rationale behind the introduction of CA in lieu of depreciation in the first place, which is to properly compensate taxpayers for efficiently using acquired assets to produce taxable income and ultimately boost government revenue.

Get the PDF version here


For further information on this article and area of law, please contact

Olukolade O. Ehinmosan at: S.P.A. Ajibade & Co., Lagos

By telephone (+234 1 472 9890), fax (+234 1 4605092)

Mobile (+234 815 0865 646 +234 810 3708 623)

Email (


[1] No. 2021/20, available here: <>, last accessed 15th December 2021 at 10:17 am.

[2] As amended by Section 22 of the Finance Act 2020 (“FA20”).

[3] Paragraph 16(1) of the Second Schedule to CITA extends the scope of the clause “in use” with respect to CA and a company’s assets – that an asset is deemed to be “in use” during a period of temporary disuse.

[4] Supra.

[5] Assets are usually acquired by corporates to facilitate production and create profits. When assets are acquired but cannot be used up during one accounting period, it is impossible to write off the total cost of such asset over one accounting period. Instead, the cost is gradually spread across all accounting periods that “benefit” from the use of the asset. These accounting periods constitute the useful life of the asset.

[6] Paragraph 6.0 of the Circular.

[7] Emphasis mine.

[8] Paragraph 5.0 of the Circular.

[9] Paragraph 7.0(i) of the Circular.

[10] Paragraph 7.0(ii) of the Circular.

[11] Page 2, infra.

[12] Paragraph 7.0(iii) of the Circular. See also, Table II of the Second Schedule to CITA (as amended).

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