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When you sell an asset be careful your wear and tear doesn't complicate your capital gains

by , 10 July 2014
Most of the assets that make up your company fall under the tax term 'capital assets'. These are the assets you use to create your income.

But like all assets, these depreciate until they have no value at all. So what happens when you sell an asset like this?

This is where things get complicated. You see, under Capital Gains Tax rules, you must pay tax on any financial gain. This includes disposing of an asset by selling it.

And that's why you need to work out your wear and tear correctly to check if you made a 'capital gain' or a 'capital loss'...

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The rule of thumb with Capital Gains Tax

 
The rule you must always remember with Capital Gains Tax (CGT) is, if you make a financial/capital gain, SARS wants a piece. 
 
So if you sell off an asset and make a profit (financial gain), you have to pay tax on it. This is true even if the value of the asset is now nil.
 
Here's what you must do...
 

You must offset your accumulated depreciation to avoid confusion with Capital Gains Tax

 
When you sell an asset, you need to offset the accumulated depreciation. This is important for accounting and tax purposes.
 
To do this, look at the total amount you claimed for your wear and tear allowance. Then compare it to what you got when you sold the asset.
 
Let's take your office chair for example. It cost you R300 and you've had it for two years. This means it has a value of nil and you claimed its wear and tear as a tax deduction. 
 
If you sell it for R500, you made a profit of R200 and have to pay CGT on that R200, even though the asset has no value. 
 
And don't forget to include whether you made a profit or a loss in your accounting and financial statements. 
 
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