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Asset depreciation in first tax year

Posted 10 February 2013 under Tax Questions



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If I registered for tax for the 2012 tax year, does that mean that I can't claim asset depreciation in that first year, since the calculations are based on asset usage in the previous year (when I wasn't utilizing the assets for work purposes)?

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TaxTimTaxTim says:
10 February 2013 at 22:19

You would be able to claim the depreciation expense for the asset for the year you are submitting a return for provided it has been used for business purposes. The asset was brought into use for business purposes on a particular day and a value would be established then. It would be justifiable to use the SARS write off periods to determine the value when the asset was brought into use in order to calculate the depreciation.


Glen says:
11 February 2013 at 12:32

Just when I thought I understood everything. :-P

Okay, here's an example:

I purchase a computer for R10,000 in June 2009 (2010 tax year), and start working in the 2012 tax year (1 Mar 2011 - 29 Feb 2012).

If I had been working during the 2010 tax year as well, I could depreciate like this:

2010 - R2500 (9/12 months)
2011 - R3333.33
2012 - R3333.33
2013 - R833.33 (3/12 months)

... but what can I claim for the 2012 tax year if I only started working (using the asset) in that year?

I thought I could claim R3333.33 (and then R833.33 the following year to complete the depreciation), are you saying that I need to devalue the asset and start the 3 year write off period again?

Example:

At the beginning of the 2012 tax year, the asset would have depreciated by R2500 (2010) + R3333.33 (2011) = R5833.33 (even though this amount was not claimed for), and the calculations would then be based on the initial value (R10,000) less the amount depreciated to date (R5833.33) i.e. R4166.67?

2012 - R1388.89
2013 - R1388.89
2014 - R1388.89

... or am I getting this completely wrong? :-)


Glen says:
11 February 2013 at 12:36

It actually adds up the same, the difference is that in the latter example, the remaining depreciation is spread over 3 years instead of 2.

... which is it? :-)


TaxTimTaxTim says:
12 February 2013 at 0:51

When you bring the asset into business use it has a value (a second hand, or used value) this then would be depreciated over the number of years SARS directs, so in this case 3 years as normal. The only difference is the value at the beginning of business use. For instance I could have a R10 000 laptop which is depreciated over 5 years under SARS rules. I only bring it into use after 2 years and the value at that date is R5 000. I would take the R5 000/5 each year as that is the value on day one for business use, regardless of what happened before personally.

Remember though that assets under R7 000 can be written off in the year they have been brought into use.


Glen says:
12 February 2013 at 12:03

1. How do I determine the value at the point at which an asset is brought into business use? (my example above used previous depreciation to determine the value, is this correct, or are there other, better methods?)

2. Is the R7000 rule for each individual asset, not combined assets? So if I had one asset with a value of R5000 and another with a value of R4000, I could write them both off in the first year?

Thanks.


TaxTimTaxTim says:
14 February 2013 at 12:05

Determining the value is difficult, but I would suggest using the SARS depreciation rates. So for instance if you bring it into use after 1 year with a remaining 4 years used for business and the asset as per SARS can be written off over 5 years then the value at use would be 4/5ths.

Eg. R10 000

SARS W&T rates - 5 years.

Value at use - R8 000

Then for tax purposes the write off is R8 000/5 years. Alternatively you need to get a true valuation of the item by researching what the same item at a used value of 1 year would cost today and that would be your value.

The small asset write off of R7 000 applies once off to assets under R7 000 per asset that can function alone, ie not a set of tools.


Glen says:
14 February 2013 at 12:22

- I'm not going to try to determine the current market value for each of my assets, that would take forever and wouldn't be very accurate anyway. I will use the first method.

- Okay, so only if your combined remaining asset value is less than R7 000 for the tax year, you can write it all off at once.

Thanks again for your help!


TaxTimTaxTim says:
14 February 2013 at 12:40

Pleasure as always!


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