Tax Tips: reduce tax liability with capital allowance claims

What is capital allowance? 

Capital allowances are tax deductions that a business can claim for the costs of certain capital assets, such as buildings, machinery, and equipment. The purpose of capital allowances is to provide tax relief for businesses for the costs of acquiring and maintaining capital assets that are used in their operations.

In South Africa, businesses can claim capital allowances for a range of assets, including:

 

1. 1. Buildings: Capital allowances can be claimed for the cost of constructing or acquiring a building for business use, including the cost of architects, engineers, and builders.

1. 1. Machinery and equipment: Capital allowances can be claimed for the cost of acquiring machinery, equipment, and other assets used in the business, such as vehicles, computers, and office equipment.

1. 1. Intangibles: Capital allowances can also be claimed for intangible assets, such as patents and copyrights.

It’s important to note that capital allowances are subject to specific rules and regulations, and it is advisable to consult with a tax professional to determine the eligibility of a particular asset and the capital allowances that may be available.

What rules pertain to the application for tax concession regarding capital or capital allowance ?

 

 

The rules for applying for tax concessions regarding capital allowances are set out in the Income Tax Act and related tax regulations. Some of the key rules and requirements include:

 

1. 1. Eligibility: Only companies that have incurred expenditure on eligible capital assets can claim capital allowances. The assets must be used for the purposes of trade or business in order to be eligible.

1. 1. Record keeping: Businesses must keep accurate records of all capital expenditures, including invoices, receipts, and other supporting documentation, in order to claim capital allowances.

1. 1. Timing: Capital allowances can only be claimed in the year that the expenditure was incurred. If the expenditure is incurred in a tax year that is different from the tax year in which the asset is first used, the capital allowances must be prorated accordingly.

1. 1. Calculation: The amount of the capital allowances that can be claimed is calculated based on a set formula and is dependent on the type of asset, the cost of the asset, and the year in which it was acquired.

1. 1. Limitations: There are limits to the amount of capital allowances that can be claimed in a given tax year, and the allowances may be limited or restricted for certain types of assets.