Asset depreciation is an important consideration when busy with the income tax for your company. Typically, any assets, with a cost price above R 7,000, are being depreciated over a number of years. Even though SARS provides a list of various
Asset depreciation is an important consideration when busy with the income tax for your company. Typically, any assets, with a cost price above R 7,000, are being depreciated over a number of years. Even though SARS provides a list of various prescribed periods of depreciation, the most commonly used items are vehicles and computer equipment.
Vehicles are being written off over a period of 5 years, and generally computer equipment over a 3-year period. The most common used method is the straight-line basis. In this method you would apply the prescribed rate to the cost price. This allows for a portion of the cost price of the asset as a deduction on the income statement and income tax calculation.
It is important to consider a few specific exceptions, that are aimed at assisting small business owners with an accelerated depreciation allowance.
Below we will discuss three important ones in a bit more detail:
Qualifying small business corporation may opt into an accelerated depreciation rate of 50-30-20.
This means that you can use depreciation as a tax deduction of 50% in the first year. Year 2, 30% and in the last year, 20%.
This can be a massive income tax allowance for startup businesses.
To qualify a company has meet several requirements:
- Turnover of below R 20 million per annum
- May not be a personal services provider (unless employing 3 or more non – connected employees)
- Shareholder must hold shares in his / her personal capacity.
- Shareholder may not hold shares in any other private company or close corporation.
Renewal Energy Allowance
Section 12b of the South African Income Tax Act makes provision for an accelerated depreciation allowance of ONE year, which means a company can deduct 100% of the cost in the year the expenses have occurred.
With the current trend of companies in the need of solar energy additions to maintain the workloads and productivity, this allowance will come in handy.
It is important to note, that its is only applicable to assets brought into use for the first time by the taxpayer.
Assets below R 7,000
Any asset acquired for less than R 7,000 may be written off in the year the expense occurred.
How would I keep track of my assets and deprecation?
We use one of two methods to keep track of a client’s assets and the depreciation thereof.
You can use a detailed assets list stating the following:
- Detail and cost price of each asset.
- Book value at the begging and end of a specific period.
- Depreciation rate.
Using this method is commonly used, and a good way of keeping track of assets and its depreciated value.
Sage Online Accounting
If you choose to go into a modern way of working, you may want to opt into using the Asset register module on Sage Online Accounting.
With the use of Sage 50 Accounts Plus or Sage 50 Accounts Professional, you can automatize the depreciation process, and through that keeping the asset register up to date.
If you need any further information about any of the content in the article, feel free to contact us below.