ACCA Advanced Taxation (ATX) Practice Exam

How far back can input tax be recovered on assets purchased for business purposes?

1. 1 year

2. 2 years

3. 3 years

4. 4 years

The correct answer is: 4 years

Input tax recovery on assets purchased for business purposes generally follows specific regulations dictated by tax authorities. In many jurisdictions, the recovery period for underused or unused input tax on fixed assets is often limited to four years from the date of purchase. This provision is in place to ensure that businesses can reclaim tax on significant capital investments that are necessary for their operations, contributing to fair taxation practices. It recognizes the time needed for businesses to ascertain the extent to which these assets are for taxable supplies. Consequently, allowing a four-year period gives businesses adequate leeway to respond to changes in their use of the assets and avoid situations where they lose out on input tax they are entitled to recover just because the timeframe to claim was too limited. Understanding this context emphasizes the importance of maintaining accurate records and being aware of the specific tax timelines that govern input tax recovery, especially as they can vary from one jurisdiction to another.