cap allow

• Types of assets eligible for capital allowances

  • Plant, machinery, utensils, implement
  • Buildings
  • Other
• Plant, machinery, utensils, implement


  • S11(e) - wear and tear
  • S12B - Renewable energy
  • S12C – plant or machinery in the process of manufacture
  • S12E – SBC
• Buildings


  • S13 – Industrial Buildings
  • S13 quin – Commercial buildings
  • S13 quat – Urban Development Zones buildings
  • S13 sex – residential buildings
  • S13 sept – fell away from 2022 - i.e. NA
• Other


  • S11(d) - Repairs
  • s12N – Improvements not owned
• Factors determining capital allowances

  • What is the nature of the asset?
  • What is the asset used for?
  • Where is the asset located?
  • Who acquired the asset?
  • State of the asset at the time of acquisition?
  • Method of acquisition?
  • What portion acquired?
  • When was the asset acquired/ construction commenced?
  • How many assets are owned by the taxpayer?
• Repairs – s11(d)


  1. Expenditure

  2. Actually incurred

  3. During the year of assessment, on repairs of property occupied for purposes of trade or iro which income is receivable (including expenditure on the treatment of timber against attacks by beetles)

  4. Repair of machinery, implements, utensils, or other articles used for trade purposes
• Repair


  • Restoration by a renewal or replacement of the subsidiary part of the whole
  • Materials need not be the same
  • Damaged or deterioration to the parts of the original asset
  • Intention must be to restore the asset to its original condition
• Renewal


  Reconstruction of the entirety
• Improvement


  • Creation of a better asset
  • Better asset = improved income
• CIR v African Products Manufacturing Co Ltd
• Section 13 industrial building allowance


  Claimed on buildings/improvements:

  • By taxpayer (let by him)
  • Wholly/mainly purpose carrying on of trade
  • Process of manufacture

  Where the building:

  • Erected by a taxpayer,
  • Purchased by TP from another person who entitled, s13(1)
  • Purchased by TP new and unused:
  • Wholly/mainly used TP or (tenant / sub-tenant)
  • During year of assessment
• Wear and tear – s11(e)

  • Value (not cost) of asset
  • Includes: Cost at time of acquisition (excl input VAT), Plus Installation/erection costs, Plus Cost of foundation/supporting structure, Plus Moving costs
  • Excludes: Finance charges
  • Must be designed for such machinery, Should be integral part of the machinery, Useful life of the foundation should be limited to useful life of the machinery
• Cost of buildings/improvements


  Includes: 'Cost' = cost for taxpayer

  Less: initial allowance (if applicable)

  Less: s13(3) recoupment (if chosen by TP)

  NOTE:

  • Not Apportioned
  • Allowance limited to cost of building
• Wear and tear – s11(e)

  • Interpretation Note No. 47
  • Binding general ruling number 7 (BGR No. 7)
  • Small items <R7 000
  • Method of depreciation
  • Apportionment
  • Assets used for both trade and non-trade purposes
  • Moving costs
• Date building erected/improvement commenced

  • Initial allowance
  • Annual allowance
• Purchased buildings


  • Purchased by TP from person entitled to allowance

  Previous owner did not qualify for allowance = TP does not qualify
• New buildings


  • Purchased by TP for a process of manufacture

  Or let out and lessee uses buildings for process of manufacture
• What if the asset acquired was a double cab light delivery vehicle?
• Example


  • Company F has an October year-end.

  It commenced with the construction of a factory building on 20 June X1. The building was completed & brought into use on 16 November,X1. The cost of building is R3,000,000 excluding VAT.
• s12B


  • Assets used for the production of bio-diesel or bio-ethanol
  • Assets used by TP for purpose of his trade in the generation of electricity for: Wind (wind solar), Sunlight (solar energy)
  • Improvements to these assets
  • Based on costs and applied as follows: 50% : 30% : 20%
• Calculate the allowance for the years of assessments ending on 31 October X1 & X2

  1. R0

  2. R3 000 000 x 5% = R150 000
• s12B


  • Claimed when first brought into use by TP
  • Asset can be new or second-hand (used)
  • No allowance on buildings
  • Asset need not be moveable to be claimable
  • Allowance not apportioned for part of a year
  • Cost: Lesser of: actual cost or arm's length cash cost, If acquired for no consideration, no allowance, Direct installation & erection costs are included, Finance charges excluded, Cost reduced by any section 8(4)(e) recoupment from previously damaged or destroyed asset, Deductions under 12B may not exceed cost of the asset
• Section 13quin - Commercial building allowance


  Claimed on buildings/improvements:

  • By the taxpayer
  • Owner, new and unused building
  • Used wholly or mainly for producing income in course of TP's trade
  • Purchased or erected by TP
  • Excluding residential accommodation

  Where the building/ Improvement:

  • Contracted on/after 1 April 2007
  • Construction began on or after 1 April 2007
  • Does not qualify for any other allowance (that section takes precedence)
• s12C


  • Owned by the taxpayer
  • Let by the taxpayer (lessor)
  • Used for purposes of trade in the process of manufacture or similar process
• Types of assets eligible for s12C

  • Machinery, plant, utensil or article used in a process of manufacture (or similar process)
  • Improvements
  • Non-qualifying assets: Section 12E (Small Business Corporation) assets
• Cost


  Lesser of:

  • Actual cost incurred by taxpayer; or
  • Direct cost under cash transaction concluded at arm's-length on date of acquisition / erection / improvement (Market value)

  INCLUDING: direct cost of acquisition / erection / improvement
• s12C - Cost of the asset

  • The LESSER of: The actual cost to the taxpayer, The cash cost in an arm's length transaction (also referred to as Open Market Value)
  • Plus: Installation/erection costs, Plus: Cost of foundation/supporting structure, Plus: Moving costs
  • Excludes: Finance charges
• Allowance


  5% per year from date brought into use
• What if there is no cost? (Inherited or donated assets)
• New and unused


  A part of the building acquired without erecting or constructing that part:

  • Part of the building – cost is 55% of the acquisition price
  • Improvement – the cost is 30% of the acquisition price

  Allowance:

  • 5% per year from date of acquisition/improvement
• s12C - Write-off periods

  • New & unused plant and machinery, on or after 1/03/2002 = 40/20/20/20
  • Secondhand plant and machinery = 20/20/20/20/20
  • NB – does not apply if let/rented out to any other TP to use in their trade UNLESS: lease is under operating lease
• Example


  • On 11 February X1 Construct (Pty) Ltd commenced with the erection of a new office block at a cost of R9 200 000 (incl VAT). The office block was completed and brought into use for purposes of a trade on 31 July X1.
• What about apportionment?
• Calculate the allowances on the office block for the years ended 31 August X1 and X2

  1. R9 200 000 x 100/115 x 5% = (R400 000)

  2. R9 200 000 x 100/115 x 5% = (R400 000)
• What about moving costs?
• Section 13quat - Buildings in UDZ


  Claimed on buildings:

  • Owned by the taxpayer
  • Erection, extension, addition or improvement of commercial or residential building (or part)
  • Used solely for taxpayer's trade
  • Situated within an Urban Development Zone (UDZ)
  • Commenced after the notice of demarcation was published in the Gazette
  • Covers the whole building or at least 1 000 sq m
• s12C


  • Company F acquired a new machine for R115 000 on 1 October x.1 and brought it into use for the first time on 1 December x.1 for the purposes of trade
• Where the building (or part) purchased from a developer

  Agreement to purchase concluded on/after 8 Nov 2005

  Developer has not claimed s13quat allowance

  In case of improvement to existing building – developer spent at least 20% of the purchase price to improve the existing building
• Non-qualifying assets


  • Section 12E (Small Business Corporation) assets
• Cost of buildings


  Amounts incurred in erecting, extending, adding, improving the building

  Includes:

  • Cost of demolishing existing building
  • Excavating land

  Excludes:

  • Finance or borrowing costs