Page 454 - SAIT Compendium 2016 Volume2

IN 47 (3) Income Tax acT: InTeRPReTaTIon noTes IN 47 (3)
• the diminishing-value method (under this method the allowance for a year of assessment is calculated on the remaining value (also known as the income tax value), that is, the cost of the qualifying asset less an allowance for the previous years of assessment); or
• the straight-line method (under this method the allowance is claimed in equal instalments over the expected useful life of the asset).
It is unnecessary for a taxpayer to notify the Commissioner when changing the method for determining the allowance. Taxpayers must ensure that they have the necessary records supporting the write-off of all assets readily available, should these be requested by the Commissioner.
4.3.3 Write-off periods
Under the diminishing-value method, the allowance must be determined on the income tax value of a qualifying asset during each year of assessment in which the asset is used for the purposes of trade. A taxpayer using the diminishing- value method that wishes to adopt the straight-line method must write off the income tax value of existing assets in equal instalments over their remaining estimated useful lives.
Example 2 — Change from the diminishing-value method to the straight-line method
Facts:
A taxpayer purchased an asset having an estimated useful life of ve years at the beginning of year 1 at a cost of R5 400. For the rst two years the taxpayer claimed the allowance using the diminishing-value method. At the beginning of year 3 the taxpayer changed to the straight-line method. Determine the wear-and–tear allowance for each of the ve years.
Result:
Original cost
Allowance for year 1 R5 400 3 20%
Income tax value at end of year 1
Allowance for year 2 R4 320 3 20%
Income tax value at end of year 2
Under the straight-line method, for years 3 to 5 the income tax value at the end of year 2 is written off in three equal instalments, that is, R3 456/3 = R1 152 per year.
R
5 400
(1 080) 4 320 (864) 3 456
Under the straight-line method the cost of an asset must be written off in equal annual instalments over its estimated useful life.
(a) Qualifying assets for which write-off periods have been listed in Annexure A
Annexure A contains a schedule of write-off periods that are acceptable to the Commissioner for assets that are written off on the straight-line method. These write-off periods are acceptable for assets that are used for purposes of trade, including a trade of leasing, and are applicable to any asset brought into use during a year of assessment commencing on or after 1 March 2009. Please note that the assets listed in Annexure A are of general application and not intended for speci c industries.
Any application to write off an asset over a shorter period than that re ected in Annexure A must be fully motivated and submitted to the SARS of ce where the taxpayer is on register for income tax purposes. The application must be lodged before submission of the return of income in which the allowance is to be claimed. Factors which may result in an asset having a shorter useful life than the write-off period speci ed in Annexure A could include the environment in which the asset operates and the intensity with which the asset is used.
An asset which is let for a period exceeding that prescribed in Annexure A must be written off over the period of the lease. In contrast, an asset let for a period shorter than that re ected in Annexure A must be written off over the period re ected in Annexure A unless a shorter period can be motivated as described in the preceding paragraph.
(b) Qualifying assets for which write-off periods have not been listed in Annexure A
The period of write-off of any asset not included in Annexure A must be determined by its expected life.
The following factors must be taken into account in determining the expected life of an asset: How long the taxpayer expects the asset to last.
How the taxpayer expects to use the asset.
Whether the asset is likely to become obsolete.
•
•
•
•
The kind of information that could be useful in determining the expected useful life of an asset includes— • manufacturer’s speci cations;
Whether the effective life of the asset is limited to the life of a particular project.
• independent engineering information;
• the taxpayer’s own past experience with similar assets;
• the accounting write-off period; and
• the past experience of other users of similar assets.
The Commissioner’s discretion in this regard will be exercised upon assessment or audit of the case. Taxpayers must ensure that they have the necessary information or documentation pertaining to the period of write-off readily available when requested by the Commissioner.
A request to include the write-off period of an asset which does not appear in Annexure A may be sent by e-mail to policycomments@sars.gov.za. In order to be included in the schedule, the asset must not be unique or be used in a unique manner.
4.3.4 Used qualifying assets
A used or second-hand asset must be written off over its expected useful life, taking into account its condition. 4.3.5 ‘Small’ items
446 saIT comPendIum oF Tax LegIsLaTIon VoLume 2