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How to avoid the most common tax deduction mistakes on your depreciating assets

by , 19 August 2015
Are you claiming a wear and tear deduction on all your assets?

Don't! You're making the most common mistake when it comes to wear and tear deductions.

A wear and tear deduction means you can claim tax deductions against your depreciating assets. So you can save some cash when you use it correctly.

But if you want your business to fully benefit from this deduction, it's important that you understand how SARS grants it.

I'll show you which assets you can claim a deduction on.

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Knowing how SARS grants a wear and tear allowance will go a long way in ensuring you benefit from this deduction.

I recommend you check out our report: Allowances and Deductions: 47 ways to get your money back from SARS! It contains everything you need to know about allowances and deductions.

Click here to find out more

Here are a few basic principles of wear and tear

You can claim a wear and tear allowance on any machinery, plant, utilities you own as long as you use them in your trade and they've worn down by wear and tear or depreciation in the year of assessment.

Four factors that influence wear and tear allowance on fixed assets

SARS will grant you an allowance for your fixed capital investments (Assets) depending on the following:

1.Size of your business
Some allowances only small business corporations can claim

2.The industry you operate in
Farmers, manufacturing enterprises and building industries have their own specific allowance

3.Type of assets you own
Certain allowance applies to certain assets. So for a manufacturing company, certain allowances apply to the production plant, while different allowances apply to computer equipment, office furniture and delivery vehicles.

4.Initiatives that government encourages
Certain inner city areas has specific allowances to encourage the private sector to invest in the infrastructure located in these designated areas.

Read on for the certain business assets and their write off –periods.

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SARS has created a list of acceptable wear and tear write-off periods for a whole range of different assets.

SARS allows a write-off period of five years for items like:

  • Fitted carpets;
  • Heating equipment;
  • Kitchen equipment;
  • Security systems;
  • Telephone equipment;
  • Communication systems;
  • Computers;
  • Personal computers; and
  • Photographic equipment.

This means, you can claim a 20% allowance on the value of these items a year for five years.

SARS allows a write-off period of three years for items like:

  • Water tanks;
  • Personal computers;
  • Electronic office equipment;
  • Computer software;
  • Calculators;
  • Excavators; and
  • Television and advertising films.

For a full list on SARS' wear and tear write-off periods for other equipment, refer to Chapter W02 in the Tax Loose Leaf. Make sure you check it out so you don't miss any tax deductions could claim on.

P.S. For more information on tax deductions sign-up to the Practical Tax Loose Leaf Service here...

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