Wear-and-tear deductions

Depreciation is the decrease in the value of an asset over time as a result of wear-and-tear. Wear-and-tear is the damage or deterioration of an asset resulting from normal use of the asset.

In accounting, depreciation is usually considered to be an expense. In terms of the Income Tax Act, one is able to claim a wear-and-tear allowance in respect of assets used for the purposes of trade. Before considering the requirements to claim a wear-and-tear allowance, we first consider the two most commonly used methods to calculate depreciation.

  1. Straight line depreciation method

Wear-and-tear is assumed to occur linearly over time. In other words, one assumes that the value of the asset depreciates by the same amount every year.

2. Diminishing value depreciation method

Wear-and-tear is assumed to happen at a higher rate early on in the asset’s life and slows down over time.

To simplify things, we will use the straight-line method during this course. A taxpayer can choose which method to apply as long as they do so consistently.

Requirements to claim ‘wear-and-tear’ allowance

  1. You must own the asset
  2. The asset must be used for the purposes of your trade (either as an employee or if you are self-employed)
  3. If the asset is not used exclusively for work purposes, the deduction must be apportioned based on your actual use for work (you may not claim back depreciation resulting from personal use)
  4. If you are employed, your employer must provide SARS with a letter which confirms that you have permission to use your personal asset for work purposes

Calculating ‘wear-and-tear’ allowance

SARS prescribes different write off periods for different types of assets. To see the prescribed write-off periods and for a complete guide on ‘wear-and-tear’ allowances you can access the SARS guide by clicking here.