Page 723 - SAIT Compendium 2016 Volume2

BGR 7 INCOME Tax aCT: BINdINg gENERaL RuLINgS BGR 7
4.3.3 Write-o 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 o 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 (R5 400 x 20%) Income tax value at end of year 1 Allowance for year 2 (R4 320 x 20%) Income tax value at end of year 2
R
5 400 (1 080)
4 320 (864)
3 456
Under the straight-line method, for years 3 to 5 the income tax value at the end of year 2 is written o in three equal instalments, that is, R3 456/3 = R1 152 per year.
Under the straight-line method the cost of an asset must be written o in equal annual instalments over its estimated useful life.
(a) Qualifying assets for which write-o periods have been listed in Annexure A
Annexure A contains a schedule of write-o periods that are acceptable to the Commissioner for assets that are written o on the straight-line method. ese write-o 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 a er 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 o an asset over a shorter period than that re ected in Annexure A must be fully motivated and submitted to the SARS o ce where the taxpayer is on register for income tax purposes. e 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-o 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 o 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 o 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-o periods have not been listed in Annexure A
e period of write-o of any asset not included in Annexure A must be determined by its expected life. e 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.
• Whether the effective life of the asset is limited to the life of a particular project.
e kind of information that could be useful in determining the expected useful life of an asset includes – • manufacturer’s speci cations;
• 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.
e 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-o readily available when requested by the Commissioner.
A request to include the write-o 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 o over its expected useful life, taking into account its condition.
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