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Your employee just crashed the company car! Now what?

by , 09 June 2014
Every employer's worst nightmare: You give your employee the use of the company car and everything seems fine. He uses the car for his business.

But then, while he's on a business trip, he gives you a call. Your lovely company car is now a squashed ball of metal.

So what do you do when one of your most expensive assets is now useless? Surely this is a massive loss for your company.

Not entirely. SARS can help in situations like these. There's an allowance here that could turn that car write-off into a tax write-off too.

Read on to discover the tax allowance that lessens the loss of a crashed company car...

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Did you know: You can claim a scrapping allowance on a useless asset?

If your employee writes off your company car in an accident, the car is now useless. This means you can claim a scrapping allowance.
According to the Practical Tax Loose Leaf, there's no actual definition of 'scrapping' in the Income Tax Act, but the courts have stated that:
The taxpayer must decide to scrap the asset because it's now useless to them. The termination of the assets normal business use follows this decision. 
This means you can scrap your company car and claim the tax deduction for it from your income tax. 
But before you do that, there's some important things you need to know about the scrapping allowance…
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Four important things you need to remember about a scrapping allowance

1. You can only deduct the scrapping allowance if it happens during the course of running your business;
2. You can't claim a scrapping allowance if you sell or abandon your business;
3. You don't need to replace the asset once you've scrapped the old one; and
4. You can scrap an asset because you want to replace it with a newer model.
So there you have it: Use this business deduction to recover the loss of the company car your employee crashed and take the tragedy out of an unfortunate situation.

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