Capital Allowances Summary Tax

CH 13 – CAPITAL ALLOWANCES


Allowances on MOVABLE Assets


S11(e) – Wear and Tear
 Movable assets (machinery, plant, implements)
 Owned by TP – or acquired by purchaser ito Instalment Sale Agreement
 Used in trade
 Value diminished – by reason of wear and tear/depreciation

Value
Allowance = x nr months used (str line)
Expected useful life

 BGR no 7 – expected useful life (write-off periods)
 Small items >R7000 – deducted in full
 Value of the asset = cost of acquisition (cash cost excl finance charges)
 Acquisition cost – cost person would incur if purchase asset at arm’s length (MV)

Examples of cost
- Original CP
- Shipping/delivery charges
- Moving costs
- Direct installation and erection costs
 No deduction – for seller ito ISA
 No deduction – for permanent structures
 Foundation/structure – specifically designed and with same useful life as movable asset
attached thereto -> not a permanent structure



S12B – Farming or Production of Renewable Energy
 Production of bio-fuel, generate electricity from renewable sources (sun, wind, water) or
farming
Write-off / Deduct:
 Photovoltaic solar energy NOT exceeding 1 megawatt – 100% of cost
 Any other – 50% y1, 30% y2, 20% y3
 Cost: lesser of actual cost and market value (s12B(3))
 S12B(4) – cases not entitled to allowance




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, S12C – Movable Assets used by Manufacturers
Industrial machinery or Machinery/plant of TP or lessee
plant - Used in process of manufacture by TP/lessee
S12C(1)(a) and (b)
Aircraft Aircraft of the TP
S12C(1)(f) - Used for trade purposes
- Excluding – aircraft where allowance was granted ito
s12B
Ships A ship of the TP
S12C(1)(g) - Used for trade purposes
Improvements Improvements of any assets
S12C(1)(h) - Except aircraft and ships

 Only avail if – asset brought into use for first time
 Cost deducted at – 20% p.y over 5 years (not apportioned)
 New + unused + BIU after 1 Mar 2002 – 40%/20%/20%/20%/20%
 Accelerated allowance not avail where asset – is let, or is not machinery or plant. Thus
N/A to aircraft and ships s12C(3)
 Cost – lesser of actual cost and MV (incl. installation, erection, moving and foundation
costs) s12C(2) and (6)



S12E – Small Business Corporations
Def: NPs whose GI does not exceed R20 mill, etc.
 Movable assets
 Cost – lessor of actual cost and MV
 Manufacturing asset – 100% in year BIU (new or 2nd hand) S12E(1)
 Non-manufacturing asset – S11(e) or 50%,30%,20% S12E(1A)
 Moving expenses (not deductible under s11(a)) – equal instalments over remaining life
S12E(3)




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