Page 533 - SAIT Compendium 2016 Volume2

IN 60 Income Tax acT: InTeRPReTaTIon noTes IN 60
In this example the vehicle was used mainly for the purposes of trade and it is therefore not a personal-use asset referred to in paragraph 53 (2) of the Eighth Schedule. Had it been a personal-use asset the capital loss would have been disregarded under paragraph 53 (1) of the Eighth Schedule.
Assets previously used for private purposes that are introduced into the taxpayer’s trade
A portion of the section 11(o) allowance must be disregarded when an asset that was previously used for private purposes is introduced into the business. This adjustment can be made by determining the value of the asset at the time it is introduced into the business.
Example 2 – Asset previously used for private purposes later used for carrying on trade
Facts:
E purchased a pick-up truck at the beginning of year 1 at a cost of R100 000 and used it for private purposes until the end of year 2 after which the pick-up truck was used exclusively in E’s delivery business. The market value of the pick-up truck at that point was R60 000. The expected remaining useful life of the vehicle at the beginning of year 3 for tax purposes was three years. At the end of year 4 E sold the vehicle for R5 000.
Result:
For the purposes of section 11 (e), the following wear-and-tear allowances were claimed: Year 3 R60 000/3 = R20 000
Year 4 R60 000/3 = R20 000
The deduction under section 11 (o) is determined as follows:
Original cost of pick-up truck
Less: Loss in value due to private usage [section 23 (b)] Remaining cost for tax purposes
Less: Wear-and-tear allowances R60 000/3 x 2
Tax value
Less: Selling price Section 11 (o) allowance
R 100 000 (40 000) 60 000 (40 000) 20 000 (5 000) 15 000
4.1.3 Qualifying asset
The allowance applies to a ‘depreciable asset’. The latter term is de ned in section 1 as follows:
The term ‘asset’ is de ned in paragraph 1 of the Eighth Schedule as follows:
The depreciable asset must qualify for an allowance under one of the sections set out in the table below:
Table 1 – Qualifying assets
‘depreciable asset’ means an asset as de ned in paragraph 1 of the Eighth Schedule (other than any trading stock and any debt), in respect of which a deduction or allowance determined wholly or partly with reference to the cost or value of that asset is allowable in terms of this Act for purposes other than the determination of any capital gain or capital loss;
‘asset’ includes—
(a) property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency,
but including any coin made mainly from gold or platinum; and
(b) a right or interest of whatever nature to or in such property;
Qualifying asset
Applicable section
Machinery, plant, implements, utensils and articles that quali ed for the wear-and-tear allowance
11 (e)
Buildings, machinery, plant, implements, utensils or articles, including improvements thereto, that were used for research and development that quali ed for the allowance (applies to assets acquired before 2 November 2006)
11B
Buildings (or part thereof), machinery, plant, implements, utensils or articles, including improvements thereto, that were used for scienti c or technological research and development that quali ed for the allowance (applies on or after 2 November 2006)
11D
Machinery, implements, utensils and articles, including improvements thereto, that were used in farming or production or renewable energy that quali ed for the 50/30/20 allowance
12B
Machinery, plant, implements, utensils, articles, aircraft or ships, including improvements thereto, that quali ed for a deduction
12C
Rolling stock that quali ed for the allowance
12DA
• The following assets of a small business corporation that quali ed for the allowance: • Plant or machinery used in a process of manufacture or similar process
• Machinery, plant, implements, utensils, articles, aircraft or ships
12E
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