In a nutshell, the S12E concessions are as follows:
- For manufacturing assets, 100% of the cost of production assets is claimable as a deduction.
- The assets must be used in a process of manufacture or a similar process.
- This does not apply to mining or farming.
- For non-manufacturing assets, the deductions are:
- 50% in the year of acquisition
- 30% in the year following acquisition
- 20% in the year thereafter
- Any assets costing less than R7,000 may be written off in full in the year of acquisition.
The concessions under S12E apply to assets paid for in full or purchased under an instalment sale agreement. Costs of installation are included in the gross asset value. Note that the gross asset value for income tax purposes is reduced by any recoupment not included previously in taxable income. Due to the concession pertaining to assets costing less than R7,000, the extent of write-off claimed should be determined on an asset-by-asset basis.
The concessions under S12E present a significant income tax planning opportunity for the small business owner due to absence of apportionment. To demonstrate this, consider this example:
|Accounting implication||Tax implication|
|Trading profit before income tax or wear and tear deduction||1,500,000||1,500,000|
|Depreciation on production assets acquired during year of assessment at cost of R2m, depreciated over 5 years||(400,000)||(2,000,000)|
|Profit/(Loss) after Depreciation or S12E Allowance||1,100,000||(500,000)|
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