INTERPRETATION NOTE 47 (Issue 5)
DATE: 9 February 2021
ACT:

INCOME TAX ACT 58 OF 1962

SECTION:SECTION 11(e)SUBJECT:

WEAR-AND-TEAR OR DEPRECIATION ALLOWANCECONTENTSPAGEPreamble ................................................................................................................................. 2
1.

Purpose ....................................................................................................................... 22.

Background ................................................................................................................. 33.

The law ........................................................................................................................ 3

4.

Application of the law .................................................................................................. 5

4.1

General principles ....................................................................................................... 5

4.1.1

Qualifying assets ......................................................................................................... 5

4.1.2

Non-qualifying assets .................................................................................................. 6

4.1.3

Improvements to existing assets ................................................................................. 8

4.1.4

Amount allowable ........................................................................................................ 9

4.1.5

Use requirement .......................................................................................................... 9

4.1.6

Apportionment ............................................................................................................. 9

4.2

Value of a qualifying asset for purposes of section 11(e) ......................................... 10

4.2.1

General rule .............................................................................................................. 10

4.2.2

Foundations and supporting structures ..................................................................... 11

4.2.3

Moving costs ............................................................................................................. 11

4.2.4

Qualifying assets acquired by donation, inheritance, distribution in specie or at a
non-arm’s length price from a connected person ...................................................... 11

4.2.5

Limitation of allowance granted on a qualifying asset previously held by aconnected person (section 23J) ................................................................................ 12

4.2.6

Leased assets ........................................................................................................... 12

4.2.7

Limitations of allowances to lessors of certain assets ............................................... 12

4.2.8

Qualifying assets acquired in a foreign currency ...................................................... 13

4.3

Policies on the determination of the amount of the allowance .................................. 13

4.3.1

Withdrawal of permission to use the debtor accounting system ............................... 13

4.3.2

Methods for determining the allowance .................................................................... 13

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4.3.3

Write-off periods ........................................................................................................ 14(a)

Qualifying assets for which write-off periods have been listed in the Annexure........ 14(b)

Qualifying assets for which write-off periods have not been listed in the Annexure.. 15

4.3.4

Used qualifying assets .............................................................................................. 16

4.3.5“Small” items ............................................................................................................. 16

4.3.6

Qualifying assets previously used to produce amounts that were not included in
the taxpayer’s income ............................................................................................... 17

4.3.7

Qualifying assets used for both private and business purposes ............................... 17

4.3.8

Qualifying asset not used for the whole year of assessment .................................... 18

4.3.9

Qualifying assets not yet brought into use for purposes of trade .............................. 19

4.3.10 Personal-use assets commencing to be used for trade purposes ............................ 19
5.

Record-keeping ......................................................................................................... 19

6.

Objection and appeal ................................................................................................ 21

Annexure– Schedule of write-off periods acceptable to SARS ............................................. 22
PreambleIn this Note unless the context indicates otherwise –•“allowance” means the wear-and-tear or depreciation allowance granted
under section 11(e);•“Schedule” means a Schedule to the Act;•

“qualifying assets” mean machinery, plant, implements, utensils and articles
qualifying for the allowance;•“section” means a section of the Act;•“Tax Administration Act” means the Tax Administration Act 28 of 2011;•“the Act” means the Income Tax Act 58 of 1962;•“Value-Added Tax Act” means the Value-Added Tax Act 89 of 1991; and•any other word or expression bears the meaning ascribed to it in the Act.

All guides, interpretation notes and rulings referred to in this Note are available on the
SARS website at www.sars.gov.za. Unless indicated otherwise, the latest issue ofthese documents should be consulted.
1.

PurposeThis Note provides guidance on the circumstances in which the wear-and-tear or
depreciation allowance in section 11(e) may be claimed as a deduction.
This Note also provides guidance on the application and interpretation of section 11(e)in relation to the determination of –•the “value” of a qualifying asset on which the allowance is based; and•the acceptable write-off period of a qualifying asset.

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The Annexure contains a schedule of write-off periods for various qualifying assets
which are acceptable to SARS.
This Note is a binding general ruling made under section 89 of the Tax Administration
Act on section 11(e) in so far as it relates to the determination –•of the value of an asset for purposes of section 11(e); and•the amount that will qualify as an allowance.

This ruling applies to any qualifying asset brought into use on or after 24 March 2020 1
2.

Background
Section 11(a) allows a deduction for expenditure and losses actually incurred in the
production of income, provided such expenditure and losses are not of a capital nature.
Over many years South African courts have developed or adopted a number ofprinciples for determining whether expenditure is of a capital or revenue nature. 2
Although capital expenditure may be incurred in the production of income and incarrying on a trade, it is nevertheless excluded from deduction under the generaldeduction formula in section 11(a). The Act addresses this issue by granting a
deduction for specific types of capital expenditure incurred in carrying on a trade,
usually in the form of an allowance spread over a number of years based on the costor value of an asset. Section 11(e) is one such specific provision and provides for anallowance on the value of any machinery, plant, implements, utensils and articles usedby the taxpayer as owner in the carrying on of a trade.

3.

The law
Section 11(e)11. General deductions allowed in determination of taxable income.—For the
purpose of determining the taxable income derived by any person from carrying on any trade,
there shall be allowed as deductions from the income of such person so derived—(e)save as provided in paragraph 12(2) of the First Schedule, such sum as theCommissioner may think just and reasonable as representing the amount bywhich the value of any machinery, plant, implements, utensils and articles (otherthan machinery, plant, implements, utensils and articles in respect of which a
deduction may be granted under section 12B, 12C, 12DA, 12E(1), 12U or 37B)
owned by the taxpayer or acquired by the taxpayer as purchaser in terms of anagreement contemplated in paragraph (a) of the definition of “instalment credit
agreement” in section 1 of the Value-Added Tax Act and used by the taxpayer
for the purpose of his or her trade has been diminished by reason of wear andtear or depreciation during the year of assessment: Provided that—(i) . . . . . .

1
2

Binding General Ruling (Income Tax) 7 “Wear and Tear or Depreciation Allowance (Issue 4).
See the Comprehensive Guide to Capital Gains Tax in Chapter 2 for commentary on theseprinciples, many of which were adopted from the United Kingdom and other Commonwealthcountries.

4(iA) no allowance may be made in respect of any machinery, plant, implement,
utensil or article the ownership of which is retained by the taxpayer as aseller in terms of an agreement contemplated in paragraph (a) of thedefinition of “instalment credit agreement” in section 1 of the Value-Added
Tax Act;(ii) in no case shall any allowance be made for the depreciation of buildings orother structures or works of a permanent nature;(iiA) where any machinery, implement, utensil or article qualifying for anallowance under this paragraph is mounted on or affixed to any concreteor other foundation or supporting structure and—(aa)

the foundation or supporting structure is designed for suchmachinery, implement, utensil or article and constructed in suchmanner that it is or should be regarded as being integrated with themachinery, implement, utensil or article; and(bb)

the useful life of the foundation or supporting structure is or will belimited to the useful life of the machinery, implement, utensil orarticle mounted thereon or affixed thereto,the said foundation or supporting structure shall for the purposes of thisparagraph not be deemed to be a structure or work of a permanent nature
but shall for the purposes of this Act be deemed to be a part of themachinery, implement, utensil or article mounted thereon or affixed thereto;(iii) . . . . . .
(iiiA) no allowance shall be made under this paragraph in respect of any
machinery, implement, utensil or article of which the cost has been allowed
as a deduction from the taxpayer’s income under the provisions ofsection 24D;
(iv) . . . . . .
(v) the value of any machinery, implements, utensils or articles used by the
taxpayer for the purposes of his trade shall be increased by the amount of
any expenditure (other than expenditure referred to in paragraph (a)) whichis incurred by the taxpayer in moving such machinery, implements, utensils
or articles from one location to another;(vi) . . . . . .
(vii) where the value of any such machinery, implements, utensils and articles
acquired by the taxpayer on or after 15 March 1984 is for the purposes ofthis paragraph to be determined having regard to the cost of suchmachinery, implements, utensils and articles, such cost shall be deemed tobe the cost which a person would, if he had acquired such machinery,
implements, utensils and articles under a cash transaction concluded atarm’s length on the date on which the transaction for the acquisition of suchmachinery, implements, utensils and articles was in fact concluded, haveincurred in respect of the direct cost of the acquisition of such machinery,
implements, utensils and articles, including the direct cost of the installation
or erection thereof; and(viii) . . . . . .

5(ix) where any such machinery, plant, implement, utensil or article was used by
the taxpayer during any previous year of assessment or years ofassessment for the purposes of any trade carried on by such taxpayer, thereceipts and accruals of which were not included in the income of suchtaxpayer during such year or years the period in use of such asset during
such previous year or years shall be taken into account in determining theamount by which the value of such machinery, plant, implement, utensil orarticle has been diminished;

4.

Application of the law

4.1

General principles

4.1.1

Qualifying assets
Section 11(e) provides for the deduction of a wear-and-tear allowance on qualifying
assets used for the purposes of trade which are –•owned by the taxpayer; or•

acquired by the taxpayer as purchaser under an “instalment credit agreement”
as defined in paragraph (a) of the definition of that term in section 1(1) of theValue-Added Tax Act.

Paragraph (a) of the definition of “instalment credit agreement” in section 1(1) of theValue-Added Tax Act reads as follows:“[I]nstalment credit agreement” means any agreement entered into on or after thecommencement date whereby any goods consisting of corporeal movable goods or of any
machinery or plant, whether movable or immovable—(a)are supplied under a sale under which—(i) the goods are sold by the seller to the purchaser against payment by thepurchaser to the seller of a stated or determinable sum of money at a statedor determinable future date or in whole or in part in instalments over a
period in the future; and(ii) such sum of money includes finance charges stipulated in the agreementof sale; and(iii) the aggregate of the amounts payable by the purchaser to the seller undersuch agreement exceeds the cash value of the supply; and(iv) (aa)the purchaser does not become the owner of those goods merely
by virtue of the delivery to or the use, possession or enjoyment by
him thereof; or(bb)

the seller is entitled to the return of those goods if the purchaser fails
to comply with any term of that agreement; or

The “commencement date” referred to in the definition of “instalment credit agreement”
is 30 September 1991.

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4.1.2

Non-qualifying assets
No allowance will be allowed on non-qualifying assets. These assets are –•assets used by a person carrying on farming activities, which constitute assets
contemplated in paragraph 12(1) of the First Schedule; 3•assets for which a deduction may be granted under section 12B, 12C, 12DA,
12E(1), 4 12U or 37B. 5 The exclusion of these assets applies even if a higher
allowance would otherwise have resulted under section 11(e). No deduction ispermissible under section 11(e) for assets of a “small business corporation” 6(SBC) for which an allowance is granted under section 12E(1). However, forassets referred to in section 12E(1A), the SBC may elect to be granted either
the 50:30:20 allowance under section 12E(1A) or the allowance under
section 11(e);•assets which are not owned by the person seeking to claim the allowance(except assets purchased under an “instalment credit agreement” ascontemplated in paragraph (a) of the definition of “instalment credit agreement”
in section 1(1) of the Value-Added Tax Act); 7•

assets the ownership of which is retained by the taxpayer seeking to claim theallowance as a seller under an “instalment credit agreement” as contemplated
in paragraph (a) of the definition of “instalment credit agreement” in section 1(1)of the Value-Added Tax Act; 8•buildings or other structures or works of a permanent nature; 9 and•assets of which the cost has been allowed as a deduction from the taxpayer’s
income under section 24D (expenditure on a National Key Point or specified
important place or area). 10

Section 23B(1) and (2), which address the claiming of deductions under more than one
provision of the Act, must also be borne in mind.

3
4

5
6
7
8
9
10

Under the opening words of section 11(e) read with paragraph 12(2) of the First Schedule.
The reference to section 12E was replaced with section 12E(1) by the Taxation Laws Amendment
Act 7 of 2010 in order to limit the scope of application of this paragraph only to sub-section (1) ofsection 12E and not to the entire section 12E.
Under the opening words of section 11(e).
As defined in section 12E(4)(a).
Under the opening words of section 11(e).
Paragraph (iA) of the proviso to section 11(e).
Paragraph (ii) of the proviso to section 11(e).
Paragraph (iiiA) of the proviso to section 11(e).

7Buildings or other structures or works of a permanent nature
The allowance is not claimable on buildings or other structures or works of a permanent
nature. 11 There is an exception for qualifying foundations or supporting structures(see 4.2.2). 12
In ITC 1313 the court accepted that “permanent” did not mean “everlasting”. 13
In Macdonald Ltd v Radin NO & the Potchefstroom Dairies & Industries Co Ltd 14 thecourt considered the question whether an article, originally movable, has become
immovable through annexation by human agency to realty. Innes CJ stated thefollowing: 15“As was pointed out in Olivier v Haarhof (T.S., 1906, p. 497) each case must dependon its own facts; but the elements to be considered are the nature of the particular
article, the degree and manner of its annexation, and the intention of the person
annexing it. The thing must be in its nature capable of acceding to realty, there must
be some effective attachment (whether by mere weight or by physical connection) andthere must be an intention that it should remain permanently attached. The importanceof the first two factors is self-evident from the very nature of the inquiry. But theimportance of intention is for practical purposes greater still; for in many instances it isthe determining element.”

Set out below are assets which have been held by the courts to comprise buildings orother structures or works of a permanent nature:

11
12
13
14
15
16
17
18
19
20
21
22
23

•

Buildings on leased land required to be removed by lessee on termination oflease 16•

Fencing 17•

Partition erected to protect taxpayer’s stock of manufactured goods 18•

Radiators, heaters and steam-pipes forming part of installations for heating andsterilization in a building used as a nursing home 19•

Rails and sleepers of a railway 20•

Railway siding 21•

Weirs 22•

Wood and iron buildings constructed of old material attached to the soil 23

Paragraph (ii) of the proviso to section 11(e).
Paragraph (iiA) of the proviso to section 11(e).
(1980) 42 SATC 197 (R) at 201.
1915 AD 454.
At 466.
ITC 722 (1951) 17 SATC 490 (C).
ITC 225 (1931) 6 SATC 158 (U).
ITC 773 (1953) 19 SATC 308 (C).
ITC 866 (1958) 22 SATC 397 (T).
The Rhodesia Railways Ltd & others v COT (Southern Rhodesia) 1925 AD 438, 1 SATC 133.
ITC 271 (1933) 7 SATC 170 (U).
Koffyfontein Estates Ltd v COT 1917 TPD 259.
ITC 370 (1936) 9 SATC 313 (U).

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In SIR v Charkay Properties (Pty)Ltd 24 the court held that a lessor was entitled to theallowance under section 11(e) on demountable partitions installed in an office buildingin lieu of interior walls. Trollip JA, in holding that the demountable partitions were not
structures or works of a permanent nature, stated that – 25
“before an article attached to a building of a permanent nature can be said to form partof it for the purposes of proviso(ii) to s 11(e) of the Act, it must have been structurally
integrated or otherwise physically incorporated into the building permanently in such a
way that it has lost its own, separate identity and character; the question whether or
not that has occurred is one of fact”.

The court also made the following obiter comment regarding the type of building
covered by the proviso: 26“As a building can sometimes be a movable or temporary structure (Pettersen v
Sorvaag 1955(3) SA 624 (AD); Le Sueur’s case(supra) at 717B-D, I think that‘buildings’ in the proviso, like ‘structures or works’, is also confined to buildings of apermanent nature (9 SATC 313/4).”

In COT v C 27 the Zimbabwe Appellate Division also concluded that based on the factsof the case demountable partitions in question were “articles” and not structures orworks of a permanent nature.
In ITC 1313 28 the Rhodesia Special Court had to consider whether carports erected at
two airports were structures or works of a permanent nature. The carports, some ofwhich had stood for eight or nine years, were designed and intended to be removableand could be quickly and easily dismantled for erection elsewhere or for storage.
Considering the nature of the article and the appellants’ intention, the court found thatthe carports were not structures or works of a permanent nature.
4.1.3

Improvements to existing assets
A distinction must be drawn between the cost of repairs qualifying for immediate
deduction under section 11(d) and improvements. This distinction is addressed inInterpretation Note 74 “Deduction and recoupment of expenditure incurred on repairs”.
In ITC 491 29 it was held that in the ordinary sense of the word, “repairs” means
replacement or renewal of something that has become defaced or worn out or worn
down by use or possibly by wear-and-tear.
In ITC 617 30 the court noted that repair is restoration by renewal or replacement ofsubsidiary parts of the whole. Renewal as distinguished from repair is reconstructionof the entirety, meaning by the entirety not necessarily the whole but substantially thewhole subject matter under discussion. The facts and circumstances of each casemust be taken into account in determining whether a particular expense constitutes arepair qualifying for immediate deduction under section 11(d) or an improvement
qualifying for a deduction over a period under section 11(e).

24
25
26
27
28
29
30

1976 (4) SA 872 (A), 38 SATC 159.
At SATC 169.
At SATC 167.
1981 (2) SA 298 (ZA), 43 SATC 9.
(1980) 42 SATC 197 (R).
(1941) 12 SATC 77 (U).
(1946) 14 SATC 474 (U).

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Expenditure on improvements to an asset must generally be written off over theremaining useful life of the asset. However, it may happen that the improvements areof such a nature that they result in the useful life of the asset being extended. In thesecircumstances any remaining pre-existing tax value plus the cost of the improvements
must be written off over the remaining extended useful life of the asset.
4.1.4

Amount allowable
The amount of the allowance will be the amount that the Commissioner regards as justand reasonable (see 4.2.1).

4.1.5

Use requirement
The allowance is deductible only to the extent that the qualifying asset is used by ataxpayer for purposes of his or her trade. The asset will be written off over its usefullife.
An asset held in reserve or as a replacement in the event of a breakdown is notconsidered to be “used” but rather “held” and accordingly will not qualify for theallowance until such time as it is brought into use by the taxpayer.
Lexico.com 31 defines “use” to mean –“[t]ake, hold, or deploy (something) as a means of accomplishing or achieving
something; employ; take or consume”.

Thus, in order for the use requirement to be met, the taxpayer must have deployed,
applied or operated the asset in the manner or for the purpose for which it was
acquired. For example, in the textile industry, sewing machines cannot be said to havebeen used for purposes of the taxpayer’s trade until such time as they are used to sew
material together, since that is the purpose for which they were acquired.
Merely assembling the machines without using them to sew will not suffice forpurposes of fulfilling the “used” requirement.
4.1.6

Apportionment
The allowance for a qualifying asset that has not been used for the purposes of tradethroughout the year of assessment must be apportioned. Apportionment will apply, forexample, to an asset acquired and brought into use during the year of assessment or
an asset disposed of during the year of assessment (see 4.3.8). Similarly, theallowance will be unavailable once an asset has been decommissioned or mothballed,
since it will have ceased to be “used” by the taxpayer.

31

www.lexico.com/definition/use [Accessed 5 February 2021].

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4.2

Value of a qualifying asset for purposes of section 11(e)4.2.1

General rule
Although the word “value” is not defined in section 11(e), it has always been the policyof SARS, unless otherwise prescribed, to regard the value of a qualifying asset for
purposes of determining the amount of the allowance as the taxpayer’s cost of
acquisition of the asset, that is, the cash cost excluding finance charges.
The revaluation of an asset would, for example, have no effect on the value of theasset for purposes of determining the amount of the allowance. 32 Examples of
exceptions to this general rule are assets acquired by the taxpayer by donation,
inheritance from a person dying before 1 March 2016, distribution in specie or from aconnected person at a non-arm’s length price.
Under paragraph (vii) of the proviso to section 11(e), the acquisition cost of a qualifying
asset is deemed to be the cost which a person would, if that person had acquired thequalifying asset under a cash transaction concluded at arm’s length on the date on
which the transaction for the acquisition of that asset was in fact concluded, haveincurred in respect of the direct cost of the acquisition of that asset, including the direct
cost of its installation or erection. This deemed cost is referred to in this Note as themarket value of the asset.
Under section 23C(1), any value-added tax payable (input tax) on acquisition of anasset must be excluded from the cost for purposes of calculating the allowance if the
taxpayer is –•a registered vendor; and•is or was entitled under section 16(3) of the Value-Added Tax Act to a deductionof “input tax” as defined in section 1(1) of that Act.

The cost pertaining to the acquisition of an asset could, therefore, include –•the original purchase price (excluding input tax to which the vendor is or wasentitled, or including input tax if the vendor was not entitled to a deduction or
the taxpayer was not a registered vendor);•the shipping or delivery charges relating to the delivery of the asset; and•the costs directly relating to the installation or erection of the asset.

Interest and finance charges must be excluded from the cost of the qualifying asset.

32

In ITC 1546 (1992) 54 SATC 477 (C) a lessor acquired second-hand furniture and fittings at abargain price from the liquidator of its lessee. The lessor attempted to claim the wear-and-tear
allowance on a revalued amount, based on paragraph (vii) of the proviso to section 11(e).
The lessor’s claim was rejected by the court which held that the allowance was properly claimableon the cost of the articles.

11
Section 24M(2) provides that if a person acquires an asset and the consideration
includes an amount which cannot be quantified in the year of acquisition, so much of
the consideration as cannot be quantified must be deemed not to have been incurredin the year of acquisition and instead deemed to be incurred only in the subsequent
year of assessment in which it is quantifiable. If the asset is a depreciable asset, theperson is given a “catch up” allowance in respect of the expenditure deemed to havebeen incurred in the subsequent year of assessment when it becomes quantifiable.
The “catch up” allowance is equal to the sum of all allowances that the person would
have been entitled to in any previous year had the expenditure been incurred in theyear of acquisition.
4.2.2

Foundations and supporting structures
Under paragraph (iiA) of the proviso to section 11(e) any concrete or other foundationor supporting structure on which a qualifying asset is mounted or to which it is affixed
is not regarded as a structure or work of a permanent nature, but is treated as part ofthat qualifying asset provided that –

4.2.3

•

the foundation or supporting structure is designed for the asset and constructedin such manner that it is or should be regarded as being integrated with theasset; and•the useful life of the foundation or supporting structure is or will be limited to theuseful life of the asset mounted on it or affixed to it.

Moving costs
Paragraph (v) of the proviso to section 11(e) provides that the value of the qualifying
asset must be increased by the amount of any expenditure incurred by the taxpayer inmoving the asset from one location to another. Moving costs must thus be written off
over the remaining estimated useful life of the asset. For example, if the asset is being
written off over five years and moving costs are incurred in year 4, those costs will beallowed as a deduction in years 4 and 5. If the asset has been written off in full, themoving costs will be allowable in the year of assessment in which they are incurred.

4.2.4

Qualifying assets acquired by donation, inheritance, distribution in specie or ata non-arm’s length price from a connected person
The allowance on a qualifying asset acquired by a taxpayer by donation, inheritancefrom a person dying before 1 March 2016, distribution in specie or at a non-arm’s
length price from a connected person is based on the market value of the asset.
This market value is determined under paragraph (vii) of the proviso to section 11(e)(see 4.2.1).
Taxpayers must ensure that they have the necessary information or documentation
readily available when requested by SARS to substantiate the arm’s length price of anasset and the inclusion of any amount in the determination of the value of an asset.
The cost of an asset acquired from a deceased person or a deceased estate on orafter 1 March 2016 is determined under section 9HA and section 25.

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4.2.5

Limitation of allowance granted on a qualifying asset previously held by aconnected person (section 23J)
Section 23J was inserted into the Act by section 38 of the Revenue Laws Amendment
Act 35 of 2007, and replaced the connected person rule that was previously provided
for under paragraph (viii) of the proviso to section 11(e). Section 23J was subsequently
repealed by section 48 of the Taxation Laws Amendment Act 22 of 2012 with effectfrom 1 January 2013 in respect of depreciable assets acquired on or after that date.
For an explanation on how section 23J was applied before its repeal, see Issue 3 ofthis Note (2 November 2012).

4.2.6

Leased assets
The allowance granted to a lessor must be based on the cost of the asset less any
residual value, as specified in the lease agreement. Many lease agreements,
particularly those involving vehicles, provide for a residual value. This residual value iswhat the lessor expects the asset to be worth at the end of the lease. At the end of thelease the lessor will usually sell the asset to recover the residual. A lessee who has
not returned an asset to the lessor in good condition or who has exceeded the agreed
usage criteria (for example, a restriction of 100 000 kilometres over 54 months in thecase of a vehicle), must often reimburse the lessor for a decline in the residual value.
In this way the value of the asset at the end of the lease is assured. Section 11(e)permits a deduction for the amount by which the value of an asset has been diminishedby reason of wear and tear or depreciation during the year of assessment. Since theportion of the cost of the asset representing the residual value is guaranteed (that is, it
is not subject to diminution in value), there is no justification for granting the allowanceon that portion of the cost.
An asset with a cost of R100 leased with an agreed residual of R20, means that thevalue by which the asset is expected to depreciate over the period of the lease is R80.
It is for this reason that lessors are required to reduce the cost of their leased assets
by the residual value for the purposes of determining the allowance.
Should any initial amount paid by the lessee not form part of the income of the lessor
for income tax purposes, it must be excluded from the lessor’s cost of acquisition of
the asset.
At the termination of the lease agreement the residual value is the value of the asset
for income tax purposes and any further write-off or recoupment will depend on how
the asset is dealt with. As far as the lessee is concerned, the recoupment provisionsof section 8(5) will apply.
See also 4.3.3(a) on the relationship between the write-off periods under the Annexure
and the lease period.

4.2.7

Limitations of allowances to lessors of certain assets
Section 23A limits the capital allowances claimable by a lessor on “affected assets”
under various capital allowance provisions including section 11(e). The sum of thedeductions allowable on affected assets in a year of assessment under the targetedallowance provisions cannot exceed the taxable income derived during the year ofassessment from “rental income”. The terms “affected asset” and “rental income” aredefined in section 23A(1). The taxable income is determined before the deduction of
the capital allowances.

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For detailed commentary on section 23A, see Interpretation Note 53 “Limitation of
Allowances Granted to Lessors of Affected Assets”.
Under section 23G the lessor in a sale and leaseback arrangement as defined in
section 23G(1) is denied an allowance under, amongst others, section 11(e) if thereceipts or accruals of the lessee or sub-lessee in that arrangement do not constituteincome.
4.2.8

Qualifying assets acquired in a foreign currency
Section 25D provides that if any expenditure is incurred by a taxpayer in any currency
other than the currency of the Republic of South Africa, it must be translated to rand
by applying the spot rate on the date on which the expenditure was so incurred.
A natural person or trust (other than a trust which carries on a trade) may, however,elect that all amounts of expenditure incurred in a foreign currency be translated into
rand by applying the average exchange rate for the relevant year of assessment[section 25D(3)].
Special rules apply when the expenditure is attributable to that taxpayer’s permanentestablishment outside the Republic and when the taxpayer is a headquarter company,
domestic treasury management company or international shipping company.
See Interpretation Note 63 “Rules for the Translation of Amounts Measured in Foreign
Currencies other than Exchange Differences Governed by Section 24I and the Eighth
Schedule” for a detailed discussion on this topic.

4.3

Policies on the determination of the amount of the allowance

4.3.1

Withdrawal of permission to use the debtor accounting system
This policy has been withdrawn for any asset let under an agreement entered into
during any year of assessment commencing on or after 1 March 2010. For an
explanation on how this policy was implemented see Issue 3 of this Note dated
2 November 2012.

4.3.2

Methods for determining the allowance
In determining the allowance, taxpayers may elect between –•the diminishing-value method (under this method the allowance for a year ofassessment is calculated on the remaining value (also known as the income
tax value), that is, the cost of the qualifying asset less an allowance for theprevious years of assessment); or•

the straight-line method (under this method the allowance is claimed in equal
instalments over the expected useful life of the asset).

It is unnecessary for a taxpayer to notify the Commissioner when changing the methodfor determining the allowance. Taxpayers must ensure that they have the necessary
records supporting the write-off of all assets readily available, should these berequested by the Commissioner.

14
4.3.3

Write-off 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 isused for the purposes of trade. A taxpayer using the diminishing-value method thatwishes to adopt the straight-line method must write off the income tax value of existing
assets in equal instalments over their remaining estimated useful lives.
Example 1 – Change from the diminishing-value method to the straight-line
methodFacts:
A taxpayer purchased an asset having an estimated useful life of five years at the
beginning of year 1 at a cost of R5 400. For the first two years the taxpayer claimed
the allowance using the diminishing-value method. At the beginning of year 3 thetaxpayer changed to the straight-line method. Determine the wear-and-tear allowancefor each of the five years.
Result:Original costLess: Allowance for year (R5 400 × 20%)
Income tax value at end of year 1

R
5 400(1 080)4 320

Less: Allowance for year 2 (R4 320 × 20%)
Income tax value at end of year 2

(864)
3 456

Under the straight-line method, for years 3 to 5 the income tax value at the end ofyear 2 is written off in three equal instalments, that is, R3 456 / 3 = R1 152 a year.
Under the straight-line method the cost of an asset must be written off in equal annual
instalments over its estimated useful life.
(a)

Qualifying assets for which write-off periods have been listed in the
Annexure

The Annexure contains a schedule of write-off periods that are acceptable to theCommissioner for assets that are written off on the straight-line method. These writeoff periods are acceptable for assets that are used for purposes of trade, including a
trade of leasing, and apply to any asset brought into use on or after 24 March 2020.
The assets listed in the Annexure are of general application and not intended forspecific industries.
Any application to write off an asset over a useful life which is a shorter period thanthat reflected in the Annexure must be fully motivated and submitted to the SARS
Branch office where the taxpayer is on register for income tax purposes. The
application must be lodged before submission of the return of income in which theallowance is to be claimed. Factors which may result in an asset having a shorter
useful life than the write-off period specified in the Annexure could, among others,
include –•the environment in which the asset operates; and•the intensity with which the asset is used.

15
The factors which must be considered and proven when submitting the application towrite off an asset earlier than the period provided in the Annexure are set out inparagraph (b) below. The facts and circumstances of each case will be considered toascertain if the asset qualifies for a shorter write-off period than the period specified in
the Annexure.
An asset which is let for a period exceeding that prescribed in the Annexure must be
written off over the period of the lease. In contrast, an asset let for a period shorter
than that reflected in the Annexure must be written off over the period reflected in the
Annexure unless a shorter period can be motivated as described in the preceding
paragraph.
(b)

Qualifying assets for which write-off periods have not been listed in the
Annexure

The period of write-off of any asset not included in the Annexure must be determinedby its expected useful life.
The following factors must be taken into account in determining the expected life of anasset:•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.

The kind of information that could be useful in determining the expected useful life ofan asset includes –•manufacturer’s specifications;•

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.

How the taxpayer expects to use the asset will take into consideration, for example,
the specific environment in which the asset is used and the intensity with which theasset is used. For example, assume a machine is generally expected to have an
estimated useful life of 5 years. It is possible that a particular taxpayer may use themachine in an environment and in a manner which impacts on the machine’s usefullife and reduces to less than 5 years. The test is whether the asset is used in a mannerthat impacts on the asset’s useful life (or in the case of an asset in the Annexure,
reduces its useful life to less than that specified in the Annexure). Not all decisions
taken with regards to assets used by a taxpayer impact on the asset’s useful life. For
example, a decision to sell an asset before the end of its useful life, or to transfer anasset to a lessee at the end of a lease period which is shorter than the asset’s usefullife, does mean that asset’s useful life is reduced, the asset still has a useful life undera different owner.

16
If an asset is not included in the Annexure, taxpayers must ensure that they have thenecessary information or documentation pertaining to the period of write-off readily
available when requested by the Commissioner upon assessment or audit of the caseas evidence of a reasonable write-off period for the asset in question.
A request to include the write-off period of an asset which does not appear in the
Annexure may be sent by e-mail to CITOpinions@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 off over its expected useful life, taking
into account its condition. Simply because a second-hand asset is older than the writeoff periods in the Annexure does not mean that it can be written off in full in the year ofacquisition.
Example 2 – Write-off period of second-hand asset
Facts:
X acquired a four-year old delivery vehicle for use in X’s business. The vehicle was ingood condition and had done only 20 000 km. X estimated that the vehicle should lastanother three years.
Result:According to the Annexure, delivery vehicles must be written off over four years.
However, the vehicle is already four years old at the date of acquisition and taking its
condition into account, its estimated useful life on acquisition is 3 years. The vehicle
should therefore be written off over three years.

4.3.5“Small” items
The cost of “small” items such as loose tools may be written off in full in the year ofassessment in which they are acquired and brought into use. A “small” item in thiscontext is one which normally functions in its own right, does not form part of a set andis acquired at a cost of less than R7 000 per item. The amount of R7 000 applies toany qualifying asset acquired on or after 1 March 2009.
A table and six chairs which plainly form part of a set can, for example, not be divided
into individual independent items costing less than the specified amount. The cost ofsuch a set amounting to R7 000 or more cannot be written off in full during the year ofassessment in which the set was acquired and brought into use.
Also, the “small items” write-off does not apply to assets acquired by lessors for the
purpose of letting. 33 Thus lessors that let small items such as DVDs, clothing,machinery, pallets or gas cylinders must depreciate these assets over their useful lives.

33

Interpretation Note 47 dated 28 July 2009 did not prevent lessors from claiming the small items
write-off of R7 000 for years of assessment commencing on or after 1 January 2009. Interpretation
Note 47 (Issue 2) dated 11 November 2009 confirms that the small items write-off no longer applies
to lessors and this modification took effect on the date of issue of that Note and applies to any asset
acquired on or after that date.

17
4.3.6

Qualifying assets previously used to produce amounts that were not includedin the taxpayer’s income
Paragraph (ix) of the proviso to section 11(e) applies if –•a qualifying asset was used by the taxpayer during any previous year ofassessment or years of assessment for the purposes of any trade carried onby that taxpayer, and•the receipts and accruals of that trade were not included in the taxpayer’s
income during that year or years.

This situation could occur, for example, when –•an asset was used by a public benefit organisation (PBO) in a previous year ofassessment during which its receipts and accruals were fully exempt fromincome tax, and the PBO became taxable on its trading activities in the current
year of assessment because its income from such activities exceeded thethreshold in section 10(1)(cN);•

an asset was used before the introduction of the residence basis of taxation for
purposes of a foreign trade; or•an asset was used in a “micro business” contemplated in the Sixth Scheduleand the taxpayer became subject to normal tax because the turnover of the
micro business exceeded the maximum threshold for such a business.

In these circumstances the Commissioner must take into account the period of use of
the relevant qualifying asset during that previous year or years in determining theamount by which its value has been diminished.
Example 3 – Asset used to produce exempt income in previous years ofassessment
Facts:
A taxpayer acquired a motor vehicle with an expected useful life of five years at a costof R100 000. During the first three years, the vehicle was used by the taxpayer for
trade purposes to generate exempt income. As from the commencement of year 4 thetaxpayer’s trade generated taxable income.
Result:
The allowance will be allowed only during the remaining two years of assessment(years 4 and 5) in which the asset was used for purposes of generating taxable income.
The taxpayer will therefore be entitled to claim an allowance of only R100 000 / 5 =R20 000 a year during years 4 and 5.
4.3.7

Qualifying assets used for both private and business purposes
The allowance must be apportioned if an asset is used for private and businesspurposes, since the deduction is allowable only to the extent that the asset was used
for the purposes of trade.

18
4.3.8

Qualifying asset not used for the whole year of assessment
The allowance must be apportioned for an asset that has not been used for the
purposes of trade throughout the year of assessment. This situation could occur, forexample, if the asset is –•acquired and brought into use during a year of assessment;•

disposed of during the year of assessment; or•used by a natural person in carrying on a trade in his or her own name and that
person became insolvent or died during the year of assessment.

The allowance must be apportioned regardless of whether the straight-line method ordiminishing-value method is used.
Sequestration
Before sequestration
Under section 25C the estate of a person before sequestration and that person’s
insolvent estate are deemed to be one and the same person for purposes ofdetermining the amount of any allowance or deduction to which the insolvent estate
may be entitled. The natural person before sequestration will therefore be entitled toonly a pro rata share of the allowance, that is, the allowance calculated from thecommencement of the year of assessment or date of commencement during the yearof assessment up to and including the day before the date of sequestration.
On or after sequestration
An insolvent estate that continues to trade in the year of assessment in which
sequestration commences will be entitled to a pro rata share of the allowance, that is,
the allowance calculated from the date of sequestration until the end of the year ofassessment or until the date of disposal of the asset if earlier. For further information,
see Interpretation Note 8 “Insolvent Estates of Natural Persons”.
Death
The comments here apply to persons dying on or after 1 March 2016.
A deceased person who used an asset for the purposes of trade is entitled to a pro
rata portion of the allowance calculated from the commencement of the year ofassessment up to and including the date of death. 34 Depending on the facts, adeceased estate or an heir or legatee that continues to use the asset in an incomeproducing trade will be able to claim a pro-rata portion of the allowance from the dateon which the asset was acquired.
The amount of expenditure deemed to be incurred by the deceased estate when it
acquires an asset from the deceased person and the amount of expenditure that anheir or legatee is deemed to have incurred upon acquiring an asset from the deceased
estate is determined under section 9HA and section 25. Special rules within thosesections apply if the disposal is to a surviving spouse.

34

Under section 66(13)(a) a person who dies is required to submit a return of income for the period
commencing on the first day of the relevant year of assessment and ending on the date of death.

19
4.3.9

Qualifying assets not yet brought into use for purposes of trade
A taxpayer that acquires an asset in one year of assessment and brings it into use forthe purposes of trade in a subsequent year of assessment will be entitled to claim thewear-and-tear allowance only from the date on which the asset is brought into use inthat subsequent year of assessment.

4.3.10 Personal-use assets commencing to be used for trade purposes
A person who acquires an asset for personal use and later deploys it in a trade will beentitled to an allowance based on the lower of cost and market value determined at
the time the asset is first used in the trade. While the section 11(e) allowance isgenerally based on cost, it is unacceptable to use the original cost when the asset has
been diminished in value as a result of personal use. 35 The expected useful life of theasset must be determined at the time it is brought into use in the trade having regard
to its condition and it must be written off over that period.
If the asset was originally acquired for no consideration (for example, by donation or
distribution in specie) or for a non-arm’s length price from a connected person, it must
be depreciated based on the lower of the original market value at the date of acquisition
and the market value at the time it is brought into use in the taxpayer’s trade.
Example 4 – Personal-use asset used for purposes of trade
Facts:
On 1 March of year 1 X acquired a passenger vehicle for personal use at a cost of
R1 million. On 1 March of year 4 X commenced to use the vehicle wholly for the
purposes of trade. The market value of the vehicle at that time was R600 000 and it
was estimated to have a remaining useful life of three years.
Result:According to the Annexure, passenger cars must be written off over five years.
However, the Annexure does not apply in this instance and the vehicle must be written
off over its remaining expected useful life of three years based on a reduced amountof R600 000.
5.

Record-keeping
Section 29(1) of the Tax Administration Act provides that a person must keep therecords, books of account or documents that –35•

enable the person to observe the requirements of a tax Act;•are specifically required under a tax Act or by the Commissioner by public
notice; and•enable SARS to be satisfied that the person has observed these requirements.

Section 23(g).

20
The records should be retained by the person for a period of five years from the dateof submission of the return. 36
Records of qualifying assets must be kept until the assets are disposed of and not
merely until they are fully written off. Such records would include those relating to theoriginal cost and accumulated allowances claimed. Such records will be required inorder to determine any future recoupment of allowances under section 8(4)(a) and any
capital gain on disposal of the assets.
Section 30(1) of the Tax Administration Act provides that the records referred to in
section 29 must be kept or retained in –•their original form in an orderly fashion and in a safe place;•the form, including electronic form, as may be prescribed by the Commissioner
in a public notice; 37 or•a form specifically authorised by a senior SARS official.

These records should be available for inspection purposes by a SARS official to verify
compliance with the requirements as explained above, or for purposes of aninspection, audit or investigation. 38
Records which are relevant to an audit or investigation or an objection or appeal must
be retained until the audit or investigation is concluded or until the assessment or thedecision becomes final in the case of an objection or appeal (in this case the five year
retention period referred to above may be exceeded). 39
The following information and documentation for any qualifying asset on which anallowance was claimed must be available:

36
37
38
39

•

The date of acquisition, the date on which it was brought into use and if
disposed of, the date on which it was disposed of.

•

The value of the asset as discussed in 4.2.

•

The write-off period of the asset and any information or documentation used indetermining its write-off period (see 4.3.3).

•

The income tax value of the asset at the end of the immediately preceding yearof assessment (any asset written off in full must be brought into account at aresidual value of R1 for record purposes).

•

If the asset is disposed of or scrapped, the price realised on disposal or
scrapping of the asset, as well as the income tax value at the end of theimmediately preceding year of assessment.

Section 29(3)(a) of the Tax Administration Act.
See GN 787 in GG 35733 of 1 October 2012.
Section 31 of the Tax Administration Act.
Section 32 of the Tax Administration Act.

21
6.

Objection and appeal
A person claiming an allowance in a return of income and who is not satisfied with an
adjustment to the allowance made by the Commissioner may object to theassessment. 40
A person entitled to object to an assessment must lodge an objection in the manner,under the terms, and within the period prescribed in the rules made by the Minister ofFinance. The rules include the following:•

The prescribed form must be completed.

•

The objection must be in writing, specifying in detail the grounds on which it is
made.

•

The objection must reach the Commissioner within a period of 30 businessdays after the date of the assessment.

Further information on the objection and appeal procedure is available in the Dispute
Resolution Guide: Guide on the Rules Promulgated in terms of Section 103 of the Tax
Administration Act, 2011 and Interpretation Note 15 “Exercise of Discretion in case of
Late Objection or Appeal”.

Leveraged Legal Products
SOUTH AFRICAN REVENUE SERVICE
Date of 1st issue:
28 July 2009
Date of 2nd issue :11 November 2009
Date of 3rd issue :2 November 2012
Date of 4th issue:
24 March 2020

40

Section 104(3) of the Tax Administration Act.

22
Annexure– Schedule of write-off periods acceptable to SARS
Asset
Adding machines

Proposed write-off period (in years)
6

Air conditioners:
Window type6

Mobile5

Room unit

10

Air conditioning assets (excluding pipes, ducting
and vents):
Air handling units

20

Cooling towers

15

Condensing sets

15

Chillers:
Absorption type

25

Centrifugal

20

Aircraft: Light passenger or commercial helicopters

4

Arc welding equipment

6

Artefacts

25

Balers6

Battery chargers

5

Bicycles4

Boilers4

Bulldozers

3

Bumping flaking

4

Carports

5

Cash registers

5

Cell phone antennae

6

Cell phone masts

10

Cellular telephones

2

23
Asset

Proposed write-off period (in years)

Cheque writing machines

6

Cinema equipment

5Cold drink dispensers

6

Communication systems

5Compressors

4Computers
Main frame / servers

5

Personal

3

Computer tablet and similar devices

2

Computer software (main frames)
Purchased

3

Self-developed

5Computer software (personal computers)

2

Concrete mixers (portable)

4

Concrete transit mixers

3

Containers (large metal type used for transporting
freight)

10

Crop sprayers

6

Curtains

5

Debarking equipment

4

Delivery vehicles

4

Demountable partitions

6

Dental and doctors equipment

5

Dictaphones

3

Drilling equipment (water)

5

Drills6

Electric saws

6

Electrostatic copiers

6

24
Asset

Proposed write-off period (in years)

Engraving equipment

5

Escalators

20

Excavators

4

Fax machines

3

Fertiliser spreaders

6

Firearms

6

Fire extinguishers (loose units)

5Fire detection systems

3

Fishing vessels

12

Fitted carpets

6

Food bins

4

Food-conveying systems

4Fork-lift trucks

4

Front-end loaders

4

Furniture and fittings

6

Gantry cranes

6

Garden irrigation equipment (movable)

5

Gas cutting equipment6

Gas heaters and cookers

6

Gearboxes

4Gear shapers

6

Generators (portable)

5

Generators (standby)

15

Graders4

Grinding machines

6

Guillotines

6

Gymnasium equipment:
Cardiovascular equipment

2

25
Asset

Proposed write-off period (in years)

Health testing equipment

5

Weights and strength equipment

4

Spinning equipment

1

Other

10

Hairdressers’ equipment

5

Harvesters

6

Heat dryers

6

Heating equipment

6

Hot water systems

5

Incubators

6

Ironing and pressing equipment

6

Kitchen equipment

6

Knitting machines

6

Laboratory research equipment

5

Lathes6

Laundromat equipment5

Law reports: Sets (Legal practitioners)

5

Lift installations (goods/passengers)

12

Magnetic Resonance Imaging Scanners

5

Medical theatre equipment

6

Milling machines

6

Mobile caravans

5

Mobile cranes

4

Mobile refrigeration units

4

Motors4Motorcycles

4Motorised chainsaws

4Motorised concrete mixers

3

26
Asset

Proposed write-off period (in years)

Motor mowers

5Musical instruments

5

Navigation systems

10

Neon signs and advertising boards

10

Office equipment – electronic

3

Office equipment – mechanical5

Oxygen concentrators

3

Ovens and heating devices

6

Ovens for heating food6

Packaging and related equipment

4

Paintings (valuable)

25

Pallets

4

Passenger cars

5

Patterns, tooling and dies

3

Pellet mills

4

Perforating equipment

6

Photocopying equipment

5

Photographic equipment

6

Planers

6

Pleasure craft etc.

12

Ploughs

6

Portable safes

25Power tools (hand-operated)

5Power supply

5

Public address systems

5

Pumps

4

Race horses

4

Radar systems

5

27
Asset

Proposed write-off period (in years)

Radio communication equipment

5

Refrigerated milk-tankers

4

Refrigeration equipment

6

Refrigerators

6

Runway lights

5

Sanders

6

Scales5

Security systems (removable)

5

Seed separators

6

Sewing machines

6

Shakers

4

Shop fittings

6

Solar energy units

5

Special patterns and tooling2

Spin dryers

6

Spot welding equipment

6

Staff training equipment

5

Surge bins

4

Surveyors:
Instruments

10

Field equipment

5

Tape-recorders

5

Telephone equipment

5

Television and advertising films

4

Television sets, video machines and decoders

6

Textbooks

3

Tractors

4

Trailers

5

28
Asset

Proposed write-off period (in years)

Traxcavators

4

Trolleys

3

Trucks (heavy duty)

3

Trucks (other)

4

Truck-mounted cranes

4

Typewriters

6

Vending machines (including video gamemachines)

6

Video cassettes

2

Warehouse racking

10

Washing machines

5

Water distillation and purification plant

12

Water tankers

4

Water tanks

6

Weighbridges (movable parts)

10

Wire line rods

1

Workshop equipment

5

X-ray equipment

5