When you claim vehicle expenses on the fixed cost method, which of the following are you allowed to claim? Vehicle is on HP Agreement, want to claim depreciation and finance charges and repayments.
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
We accept, for purposes of the guidance that follows, that you require guidance with respect to the reduction of the allowance that is done under section 8(1)(b) of the Income Tax Act. It is clear that the taxpayer will be basing this on the basis of ‘accurate data furnished’ – see section 8(1)(b)(iii) – and not on the rate per kilometre determined by the Minister in the Gazette. Section 8(1)(b)(iii) (in (aa)) deals with a ‘vehicle that is being leased’ differently to any other vehicle (in (bb)). An ‘HP’, that you refer to, is not a lease.
Section 8(1)(b)(iiiA)(bb)(A) refers to the ‘cost of the vehicle and it excludes, in section 8(1)(b)(iiiA)(bb)(A), finance charges (as you also indicated). It does refer to “the date of original acquisition by that recipient”.
Please note that the ‘repayments’ cannot be used.
The Act allows for both the wear and tear, on the cost, and the finance charges to be used in the calculation. Remember that for both, there is an annual limit – R560 000 for the 2017 year of assessment – see section 8(1)(iiiA) of the Act.