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Capital Allowances - Coggle Diagram
Capital Allowances
What is
Capital Allowances
For
Accountancy
But this is according to the accounting policy
Writing down of Assets over useful life=
Depreciation
For
Tax
"
Tax Depreciation
"=
Capital Allowances
It's a similar principle to that of Accounting but in Tax we call it
Capital Allowances
.
According to various sections in the Act
3 Categories of Capital Allowance
2.) S 12C manufacture plant & machinery allowance
3.) S 13...Building allowance
1.) Section 11(e) wear and tear allowance
1.) Section 11(e) wear and tear allowance
About Section 11(e)
Assets used for trade purposes
Apportioned for part of a year (as for accounting depreciation)
Capital allowance= wear and tear allowance
Used for various "smaller" assets
The assets concerned
2.) Value of asset
Includes
=
Cost at time of acquisition
(excl VAT)
+
Installation/Erection Costs
+
Cost of Foundation/Supporting Structure
+
Relocation costs
Excludes
Finance charges, value of skills and labour where the taxpayer constructured the assets
3.) Write-Off time
Write off periods differ for each type of assets
Measurement
Straight-line basis
(Ignore diminishing balance method)
Compliance requirement
Assets must be used during the year
Apportioned proportionally
e.g 6/12
If held in reserve be wear & tear allowance
1.) Type of Asset
Machinery, plant, implements, utensils and articles acquired in SA
used by the taxpayer for trade purposes
Non qualifying assets
Section 12C/12E
assets
Buildings and structure of a permanent nature
Farmers
(s12B)
Important
Accounting:
Subtance over form
Tax:
look at the form
Therefore,
s11(e) may be claimed if
The taxpayer
owns
the asset
The taxpayer is the
lessor
, i.e.,
owns
the asset
4.) Apportionment
Apportion for the certain period it was used during the year. eg.) 6/12
Used/Second hand assets
Written off over expected lifetime
however base that write off period based on your cost price
Items of
less than R7000
Write-off in full
disregard the write-off period
Asset must function on its own and not be part of a set
Determined with reference to
Interpretation Note 47
For guidance
Appendix B in Notes on SA Tax
(Pg 1034)
for proposed
write-off period
for a particular asset
2.) Section 12C- Manufacturing plant and machinery allowance
Par 7.5.1-7.5.4
About Section 12C
Used in process of
Manufacture
Process of Manufacture
Not defined in Act. Guidelines in court cases
Guidelines
Must be an essential change in nature/utility/form of the product
Process need not produce end product, but must contribute to the end product
Must be a complete process (i.e., continuous)
Practise Note 42 - list of processes/ similar processes of manufacture
Not
Apportioned
"Bigger assets"
(Plant and Machinery)
Used for the first time by this taxpayer (can be second hand)
Section 12C may be claimed if:
The taxpayer owns the Asset
The taxpayer is the lessor, i.e. owns the asset
The Asset concerned
2.) Cost of Asset
The
lesser
of:
The actual cost to the taxpayer
The market value
Plus:
Installation/erection costs
Plus:
Cost of foundation/supporting structure
Plus:
Relocation costs
Excludes:
Finance charges
3.) Write-off period
Start when first
bought into use
New:
on or after
1/03/2002
Claim
20%
in year 2
Claim
20%
in year 3
Claim
40%
in year 1
Claim
20
in year 4
Ships/Aircraft/Second-hand:
Claim
20%
in year 1
Claim
20%
in year 2
Claim
20%
in year 3
Claim
20%
in year 4
Claim
20%
in year 5
Moving Costs
Write-off moving cost over reminder of allowances
lets say its a second hand and the moving happens in year 3...write off the moving cost of the 2 years that's left
If asset is already fully written off- deduct full moving cost
1.) Type of Asset
Machinery/plant used in a
process of manufacture
(or similar process)
Non-qualifying assets= Section 12E assets (small business corporation)
4.) Apportionment
Do not apportion
3.) S 13...Building allowance
About Section 13: Manufacturing/Industrial buildings
Building used in a process of manufacture
Only qualify for capital allowance on the cost of buildings only. Don't include Land
NB!! Always state that the is no allowance on the land and this is usually a free market
s13 can only be claimed if
The taxpayer
owns
the asset
The taxpayer is the
lessor
, i.e.,
owns
the asset
For
S13
There are various allowances for the different years
Look at when the erection of building started
Not Apportioned
The Asset concerned
2.) Cost of Asset
Includes
'Cost'=cost for taxpayer
Less:
Initial allowance (if applicable)
Less:
s13(3) recoupment(if chosen by TP)
3.) Apportionment
Do not apportion
1.) Type of Asset
Buildings (and certain improvements) used wholly/ mainly in the process of manufacture(or a process which is similar in nature).
Non-qualifying assets:
Land, Improvements to subsidiary buildings or building not used in the process to manufacture
4.) Write-off period
Various allowances
INITIAL ALLOWANCE
ANNUAL ALLOWANCE
DATE BUILDING COMMENCED
:star:
Before 25 March 1959
:
:star:
25 March 1959- 30 June 1985
:star:
1 July 1985- 31 Dec 1988
:star:
1 Jan 1989- 30 June 1996
2 more items...
17.5%
(must have been brought into
use on/before 31 Dec'89
)
1 more item...
None
2%
1 more item...
None
None
Used Building
Allowance is claimable on new cost
(purchase price)
If purchased
after 1 April 2000
, and seller was allowed 10%, purchaser
only allowed 5%
Purchaser is entitled to allowance seller was claiming
Section 13quin: Commercial Buildings
About
Section 13quin
used to
Produce income in a trade
Not
Residential accommodation
To qualify Commercial buildings have to be
new and unused
...no second hand
From
1 April 2007
It's an
allowance on Commercial buildings
The asset concerned
2.) Cost of Asset
The
lesser
of:
The actual cost to the taxpayer
The market value
3.) Apportionment
Do NOT apportion
1.) Type of Asset
New and Unused
Buildings owned by the taxpayer, used in the production of income
Non-qualifying assets:
Residential buildings
4.) Write-off period
5%
Section 13sex: Residential units
About
Section 13sex
Taxpayer commences erection
Taxpayer effects improvements
On/after
21 Oct 2008
If meet
requirements
3.) Taxpayer owns units
4.) Used solely for the purpose of trade
2.) Improvements new/unused
5.) Unit in RSA
1.) New/unused
6.) Taxpayer owns at least 5 residential units in RSA - used for trade
Taxpayer acquires
Residential units
Taxpayer lets it out to individual
Or used for employees.
*Does not apply for mining industry
Not a hotel
Used mainly for residential accommodation as part of taxpayer trade
Building/self contained apartment
The asset concerned
Write-off
10% - low cost unit
(the 5%+ an extra 5%)
No apportionment
5% - normal unit
Claimed annually on Cost
Do not write-off S13sex if
Monthly rental exceed 1% of Cost on year 1
; Cost being
After year 1 then you can increase by 10% per annum
Building + proportion cost of land and infrastructure
Apartment
Cost of Asset
The
lesser
of:
The actual cost to the taxpayer
Including direct costs of acquisition/improvement/erection
The market value
Acquires part of a building(apartment)/Improvements
-
deemed cost
55% of acquisition price
30% of improvements acquisition price
Low-Cost Unit
Building- Cost does not exceed R300 000
excluding land and infrastructure
Apartment in a building-
cost does not exceed R350 000
If more than R350 000 claim 5% only