capital allowances

Key question: Can the company deduct the expenditure incurred from buying assets under Section 11(a)?

Income Tax Act – Relevant sections for capital allowances.
Haupt Notes on SA Income Tax (2026) – Theoretical background.
Mitchell et al. Tax Workbook (2026) – Practical questions and problems.
Lecture Guide – Outline of content included in the course.
Binding General Ruling (Income Tax) 9 (Issue 4) & Interpretation Note 47 (Issue 5) – Regulatory clarifications.
Note: Ignore all references to connected persons.

Conditions for allowance:
- Expenditure and losses must be incurred.
- Must have occurred during the year of assessment.
- Expenditure must be in the production of income.
- The expenditure is not of a capital nature.

Factors to consider when applying capital allowances:
- Type of capital asset acquired by the taxpayer.
- VAT implications (Remove VAT - Section 23C).
- Normal tax implications (Application of capital allowances).

Nature of the asset: Building, machinery, intellectual property? Is it for trade, residential, or commercial purposes?
Process of manufacture: Solely/wholly/mainly for certain use?
Location: Is the asset in the Republic? Is it in an Urban Development Zone (UDZ)?
Ownership: Who acquired the asset? Is it a Small Business Corporation (SBC)?
Condition upon acquisition: Was it new, used or unused?
Method of acquisition: Purchased outright, under a lease, constructed?
Timing of acquisition: When was the asset acquired or construction commenced?
Quantity of assets: How many assets are owned by the taxpayer?

Plant and machinery: Section S11(e) for wear and tear.
Renewable energy (Farming): Section S12B.
Plant or machinery in the manufacturing process: Section S12C.
Small Business Corporation buildings:
- Industrial Buildings: Section S13,
- Commercial Buildings: S13 quin,
- Urban Development Zones Buildings: S13 quat,
- Residential Buildings: S13 sex,
- Buildings acquired on or before 2022: S13 sept.
Intellectual Property:
- Registration expenses: S11(gB),
- Acquisition expenses: S11(gC).
Other: Repair costs: S11(d), improvements not owned: S12N.

Qualifying assets must include:
- Owned by taxpayer or leased.
- Must be used for trade purposes.
- Must show a decline in value due to wear and tear or depreciation during the year of assessment.

The lower of cost and market value is used to determine the value of the asset at the time of bringing into trade use.
Documentation is required showing the write-off of assets.

Year 1 (x.1)
- Not brought into use: R0
Year 2 (x.2)
- Allowance = $R115,000 imes rac{100}{115} imes rac{1}{4} imes rac{11}{12} = R22,917$
Year 3 (x.3)
- Allowance = $R115,000 imes rac{100}{115} imes rac{1}{4} = R25,000$
Year 4 (x.4)
- Allowance = $R25,000$
Year 5 (x.5)
- Allowance = $R25,000$
Year 6 (x.6)
- Allowance = $R115,000 imes rac{100}{115} imes rac{1}{4} imes rac{1}{12} = R2,083$

Assets used in the generation of bio-diesel, bio-ethanol, or renewable energy are categorized under:
- Solar energy: Photovoltaic using more than or less than 1 megawatt falls under different subcategories with varying allowances.
Ownership requirement: Asset must be owned or acquired via an Instalment Sale Agreement (ISA).
Allowance structure:
- 50% in year 1,
- 30% in year 2,
- 20% in year 3.

It must be a close corporation, co-op, or private company as defined in the Companies Act with the following:
- All members must be natural persons.
- Earnings must not exceed R20 million.
- Members must not hold shares in other companies over a threshold.

Type of asset: Deduction is based on the lesser of cost or arm’s length transaction value.
Manufacturing assets get a 100% allowance in the year they are brought into use.
Repair and maintenance costs may also be applicable under S11(d).

Must have been incurred during the year of assessment on qualifying properties for trade purposes.
The distinctions between repairs, renewals, and improvements are essential in claiming deductions and allowances.