Two schedules for one asset
Every business asset needs two calculations. The first is accounting depreciation, which spreads the cost over the years you expect to use the asset so that each year's profit carries its share. You choose the useful life, residual value and method, and review them each year end. The second is the tax allowance: what SARS lets you deduct from taxable income. It follows SARS's own periods and rules, so the two numbers seldom match. In company financial statements the timing difference is what gives rise to deferred tax.
Straight-line and reducing balance
Straight-line depreciation is (cost − residual value) ÷ useful life, the same charge each year. Reducing balance applies a fixed percentage to the carrying amount at the start of each year, so the charge is highest in year one and falls after that, which suits vehicles and computers that lose value fastest when new. In the first year both are multiplied by the months in use over 12. On reducing balance this calculator writes the remaining balance down to the residual value in the final year of the useful life, so the schedule ends where it should.
How the SARS wear-and-tear allowance works
Section 11(e) of the Income Tax Act allows a deduction for machinery, plant, implements, utensils and articles used in your trade. SARS accepts the straight-line method over the periods in the schedule to Binding General Ruling 7, which applies to assets brought into use from 24 March 2020. You may use the diminishing-value method instead, and you can change from one to the other without telling SARS, as long as your records support the write-off. The value used is the cash cost of the asset, including installation, but not finance charges.
SARS write-off periods for common assets
| Asset | Years | Straight-line rate |
|---|---|---|
| Computers: personal (desktop or laptop) | 3 | 33.33% |
| Computers: main frame or server | 5 | 20% |
| Computer tablets and similar devices | 2 | 50% |
| Computer software (personal computers) | 2 | 50% |
| Cellular telephones | 2 | 50% |
| Office equipment: electronic | 3 | 33.33% |
| Office equipment: mechanical | 5 | 20% |
| Furniture and fittings | 6 | 16.67% |
| Photocopying equipment | 5 | 20% |
| Telephone equipment | 5 | 20% |
| Passenger cars | 5 | 20% |
| Delivery vehicles | 4 | 25% |
| Motorcycles | 4 | 25% |
| Trucks (heavy duty) | 3 | 33.33% |
| Trucks (other) | 4 | 25% |
| Trailers | 5 | 20% |
| Fork-lift trucks | 4 | 25% |
| Kitchen equipment | 6 | 16.67% |
| Shop fittings | 6 | 16.67% |
| Cash registers | 5 | 20% |
| Air conditioners: mobile | 5 | 20% |
| Air conditioners: window type | 6 | 16.67% |
| Generators (portable) | 5 | 20% |
| Generators (standby) | 15 | 6.67% |
| Power tools (hand-operated) | 5 | 20% |
| Security systems (removable) | 5 | 20% |
| Television sets, video machines and decoders | 6 | 16.67% |
| Refrigerators | 6 | 16.67% |
| Tractors | 4 | 25% |
The schedule is a guide, not a closed list. An asset not on it is written off over its expected useful life. For a shorter period than SARS lists, apply with a motivation to your SARS branch before you file the return that claims it.
Worked example: a delivery vehicle
A courier company with a February year end buys a delivery vehicle for R420,000 and puts it on the road on 1 September, 6 months before year end. SARS allows 4 years for delivery vehicles, so the full annual allowance is R105,000 and year one is apportioned to R52,500. The allowance runs for 5 tax years, ending with R52,500.
In the accounts the company expects to use the vehicle for 6 years and sell it for R120,000. Straight-line depreciation is (R420,000 − R120,000) ÷ 6 = R50,000 a year, or R25,000 for the first six months. At 25% reducing balance the first charge would be R52,500 and the second R91,875. Either way the tax deduction runs ahead of the book charge in the early years and behind it later.
Small items under R7,000
An item costing less than R7,000 that functions on its own can be written off in full in the year it is bought and brought into use. A cellphone at R6,500 qualifies; a set of office chairs bought together for R9,000 does not, even at R1,500 a chair, because the set is what you bought. The rule does not apply to assets bought by a lessor to let out.
Part-year use and private use
The wear-and-tear allowance is apportioned when an asset is not used in the business for the whole year: when it is bought or sold during the year, or when the owner of a sole proprietorship dies or is sequestrated. It is also reduced to the business share when the asset is used privately. A passenger car used 70% for business gives 70% of the 5-year allowance. Input VAT on a passenger car is generally not claimable, so its cost for this purpose includes the VAT.
Accelerated allowances: sections 12C and 12E
New or unused plant and machinery used directly in a process of manufacture qualifies under section 12C for 40% of cost in the first year and 20% in each of the next three. A small business corporation gets more: 100% in the first year on manufacturing plant and machinery under section 12E(1), and the choice of 50%, 30% and 20% over three years on its other depreciable assets under section 12E(1A). On a R200,000 fit-out of furniture and fittings that means R100,000, R60,000 and R40,000, against 6 years of wear-and-tear. These percentages apply to cost and are not reduced for part of a year. Check whether your company qualifies with the company tax calculator, and see what the deduction does to profit after tax with the net profit calculator.
Selling or scrapping the asset
When you dispose of an asset, compare the proceeds with its tax value: cost less the allowances claimed. Proceeds above tax value are a recoupment and are taxed as income under section 8(4)(a), up to the allowances you had. Keep this schedule with your fixed asset register so the figures are to hand. For the VAT on a sale, the VAT calculator splits an inclusive price.
Frequently asked questions
What is the difference between depreciation and wear-and-tear?
Depreciation is the accounting charge in your financial statements, based on your own estimate of useful life and residual value. Wear-and-tear is the deduction SARS allows under section 11(e) when working out taxable income. You calculate both, and the gap between them is a timing difference, not lost tax.
Over how many years can I write off a laptop for tax?
SARS accepts 3 years for a personal computer on the straight-line method, so a R24,000 laptop used fully for business gives R8,000 a year. A laptop costing less than R7,000 can be written off in full in the year you buy it, provided it is not part of a set.
What is the R7,000 small items rule?
An item that costs less than R7,000, works on its own and does not form part of a set can be deducted in full in the year it is acquired and brought into use. A boardroom table and six chairs bought together are one set, so the combined cost is what counts. Lessors cannot use the rule for items they let out.
Do I get a full year of wear-and-tear if I buy an asset near year end?
No. The allowance is apportioned for the part of the year the asset was used in the business. A R420,000 delivery vehicle brought into use six months before year end gives R52,500 in the first year, not R105,000. The 50:30:20 and 40:20:20:20 allowances are percentages of cost and are not apportioned.
Can I use a shorter write-off period than the SARS table?
Yes, but you must apply to the SARS branch where you are registered, with a full motivation, before you submit the return that claims it. Factors such as harsh operating conditions or heavy use can justify a shorter life. A second-hand asset is written off over its expected remaining useful life, taking its condition into account.
Which assets qualify for wear-and-tear?
Machinery, plant, implements, utensils and articles that you own and use for the purposes of your trade. Buildings and land do not, and assets covered by another allowance, such as section 12C manufacturing plant, are claimed under that section instead. An asset bought on an instalment credit agreement counts as owned for this purpose.
What happens to the allowance when I sell the asset?
If you sell for more than the asset's tax value, the allowances you claimed are recouped and included in your income under section 8(4)(a). If you sell for less, the shortfall can usually be claimed as a scrapping allowance. Keep the schedule of each asset, with dates and allowances, for that calculation.