Need clarification on Small Business Tax - Tax Rates / Wear & Tear Allowances?
Important:
This answer is based on tax law year ending 28 February 2019.
Answer:
The relevant law, and we accept that the company qualifies as a small business corporation (in that it meets all the requirements of section 12E(4) of the Income Tax Act), is found in section 12E(1) and 12E(1A). We copied it for ease of reference below and will make some comments about it. You can submit a further request for guidance with respect to the specific issue you require assistance with the interpretation of.
Section 12E:
“(1) Where any plant or machinery (hereinafter referred to as an asset) owned by a taxpayer which qualifies as a small business corporation or acquired by such a taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of “instalment credit agreement” in section 1 of the Value-Added Tax Act—
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is brought into use for the first time by that taxpayer on or after 1 April 2001 for the purpose of that taxpayer’s trade (other than mining or farming); and
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is used by that taxpayer directly in a process of manufacture (or any other process which is of a similar nature) carried on by that taxpayer,
a deduction equal to the cost of such asset shall be allowed in the year that such asset is so brought into use.
(1A) Subject to subsection (1), where any machinery, plant, implement, utensil, article, aircraft or ship in respect of which a deduction is allowable under section 11 (e) (“the asset”) is acquired by a small business corporation under an agreement formally and finally signed by every party to the agreement on or after 1 April 2005, the amount allowed to be deducted in respect of the asset must, at the election of the small business corporation and subject to the provisions of that section, be either—
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the amount allowable in terms of and subject to that section; or
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an amount equal to 50 per cent of the cost of the asset in the year of assessment during which it was first brought into use, 30 per cent in the first succeeding year and 20 per cent in the second succeeding year.”
This is relatively straight forward, but you may want to refer to the current practice generally prevailing, issue 7. It explains this is some detail – particularly the election with respect to assets not used in the process of manufacture.