Here are the three basic tax principles of a wear and tear allowance

43984, 10 Sep. 2014

Tags: wear and tear allowance, sars

There’s a lot of confusion regarding a wear and tear allowance.
This often results in companies claiming a wear and tear allowance for all their assets – this isn’t allowed. In fact, it opens to door to endless SARS audits and harsh penalties.
You can avoid this happening to your company if you know the three basic tax principles of a wear and tear allowance.
Read on to find out what they are so you’ll avoid penalties.
Three basic tax principles of a wear and tear allowance
Basic tax principle of a wear and tear allowance #1: You can claim a wear and tear allowance on any machinery, plant, implements, utilities, and other articles you own as long as you use them in your trade and they’ve been worn down by wear and tear or depreciation in the year of assessment.
Basic tax principle of a wear and tear allowance #2: An asset is something you own that’s valuable and useful and will either make or save you money. It’s also something that you can generally use for more (or lasts longer) than 12 months.
Assets can be:
  • The machines you manufacture your product on;
  • The warehouses you store your product in;
  • The vehicles you use to deliver your product;
  • Your product itself while it’s in your possession;
  • Your computer equipment;
  • The desks and chairs your staff use; and
  • The office coffee machine.
Basic tax principle of a wear and tear allowance #3: SARS will give you an allowance for your fixed capital investments (assets) depending on the following:
  • The size of your business;
  • The industry you operate in;
  • The type of assets you own; and
  • Initiatives that government encourages. (E.g.: The declaration of certain inner-city areas as Urban Development Zones has specific allowances to encourage the private sector to invest in infrastructure located in these designated zones.)
Now that you know the basic tax principles of a wear and tear allowance, handle them correctly so you can avoid penalties.

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