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Not sure how SARS grants a wear and tear allowance? This example will clear this up for you

by , 12 June 2014
In these trying economic times, a wear and tear allowance comes in handy because it means you can claim tax deductions against your income and save some cash.

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

Here's a practical example that shows how SARS grants a wear and tear allowance.

SARS uses this method to decide the amount of the wear and tear allowance

The decision of the wear and tear is based on the amount by which the value of the asset has diminished during the year as a result of wear and tear (Section 11(e) of the Income Tax Act).

So, if for example, you use an asset 80% for trade and 20% for private purposes, SARS will only grant you the allowance based on 80% of the amount by which the value of the asset has reduced, says the Practical Tax Loose Leaf Service.

Here's an example to show you this point…

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Here's an example to show you how SARS grants a wear and tear allowance

Frank's French Fries, a sole trader, buys a notebook computer for his business on 1 April 2009 (but he only starts using it from 1 May 2009. It costs him R10 000. He uses the computer for personal use as well (about 80% is for business purposes).

The wear and tear allowance for this type of asset is three years. Therefore, Frank calculates his allowance for the tax year ending 28 February 2010 as follows: (R10 000 / 36 months) x 10 months = R2 777.78 x 80% = R2 222.22. He does this because he knows SARS uses this method when it grants a wear and tear allowance.

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

If you have any more questions, we 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.



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