HomeHome SearchSearch MenuMenu Our productsOur products

Make sure you understand the Capital Gains Tax implications before you scrap an old company asset or you could lose a valuable tax deduction

by , 28 January 2015
When an asset gets so old, it doesn't work anymore, you can scrap it.

Now many business owners just assume that scrapping an asset means there's no Capital Gains Tax (CGT).

But this isn't always the case. Depending on your specific situation, you might still have to pay CGT.

To get this right, make sure you understand these CGT implications so you can deal with the loss correctly and claim a tax deduction on it ...

 

Here are the Capital Gains Tax implications of scrapping an asset

 
If the asset was a depreciable asset, then you can use the scrapping allowance. If so, you won't have any Capital Gains Tax implications and you can't claim it as a capital loss.
 
But if it wasn't a depreciable asset, it's a capital loss. This loss is easy to calculate (proceeds – zero – minus the base cost). You can claim this capital loss against your capital gains for the year.
 
So how do you work out if it's a depreciable asset or not?
 
*********** Hot off the press  ************
 
You have one Capital Gains Tax lifeline
 
It'll give you secrets most businesses will never know and help you avoid paying crippling taxes every single year.
 
 
*************************************
 

Here's how to work out if an asset is depreciable or not

 
To work out if your asset depreciates, work out it's current value. It the current value is less than the base cost you originally paid for it, it depreciated.
 
But non-depreciable assets are ones you use and disposed of in the same taxable year. We say these are non-depreciable because you don't use them long enough for them to depreciate over time. Here you throw the asset away when it's no longer useful. 
 
For example, if you run a hotel, the hangers are a non-depreciable asset because they break so quickly.
 
It's really that simple. 
 
But if you're scrapping a depreciable asset, you need o be aware of this one important point.
 

Be careful of this one important point when you scrap a depreciable asset

 
Be aware of scrapping an asset that still has value. According to David van Niekerk, Editor-in-Chief of the Practical Tax Loose Leaf Service, SARS might treat the market value of this asset as the proceeds. After all, why would someone throw away an asset if it still had a value? It might think you're trying to avoid tax
 
There you have it. The golden rule is to determine whether the asset is depreciable or not to find out if there are CGT implications.
 
If you have any questions, just ask the experts on the AccountingandTaxClub.co.za. You can also check out the Practical Tax Loose Leaf Service for more information on Capital Gains Tax and scrapping an asset. 
 


Related articles




Related articles



Related Products



Comments
0 comments


Recommended for You 

  Quick Tax Solutions for Busy Taxpayers – 35 tax answers at a glance



Here are all the most interesting, thought-provoking and common tax questions
asked by our subscribers over the last tax year – everything from A to Z!

To download Quick Tax Solutions for Busy Taxpayers – 35 tax answers at a glance click here now >>>
  Employees always sick? How to stop it today



Make sure you develop a leave policy to regulate sick leave in your company.

BONUS! You'll find an example of the leave policy and procedure in this report.

To download Employees always sick? How to stop it today click here now >>>
  Absenteeism: Little known ways to reduce absenteeism



This FREE e-report will tell you how you can reduce absenteeism in your workplace while avoiding the CCMA and without infringing your employees' labour rights.

To download Absenteeism: Little known ways to reduce absenteeism click here now >>>
  7 Health & safety strategies to save you thousands



Don't let a health and safety incident cost you one more cent. Implement these seven
strategies in your company today.

To download 7 Health & safety strategies to save you thousands click here now >>>