The Tax Treatment of Goodwill: Why Amortisation is Not Deductible under South African Law

The Tax Treatment of Goodwill: Why Amortisation is Not Deductible under South African Law

• 15 April 2025
• Corporate Tax
• The Tax Faculty Tax Specialist

This article is based on tax law for the year ending 29 February 2026.

Question : 

• A taxpayer wishes to determine whether the amortisation of goodwill is allowable as a tax deduction.
• Goodwill typically arises from the acquisition of a business and is classified as an intangible asset with an indefinite useful life.

Answer :

The Problem / Facts

• A taxpayer wishes to determine whether the amortisation of goodwill is allowable as a tax deduction.
• Goodwill typically arises from the acquisition of a business and is classified as an intangible asset with an indefinite useful life.

Analysis of the Tax Issues Identified in the Question

• Goodwill is generally acquired in the context of a business transaction and is regarded for tax purposes as a capital asset rather than a revenue asset.
• The Income Tax Act distinguishes between capital and revenue expenditure, which influences the deductibility of expenses.
• While accounting standards may require goodwill to be amortised or subjected to impairment reviews in financial statements, the tax treatment differs.
• For tax purposes, deductions are limited to revenue expenditure or allowances in respect of depreciable assets under section 11(e), and goodwill does not meet the criteria for a depreciable asset.

 Tax Issues with the Appropriate Sections of the Tax Legislation

• Tax Issue: The classification of goodwill as capital expenditure implies that its amortisation is not deductible as a revenue expense or as a depreciable asset.
• – Relevant Section: Section 11(e) of the Income Tax Act 58 of 1962, which outlines conditions under which wear-and-tear allowances may be claimed on assets. Applicable Law
• Income Tax Act 58 of 1962
• – Section 11(e): Provides for wear-and-tear allowances on qualifying depreciable assets. Goodwill, due to its capital nature and indefinite useful life, does not qualify for such an allowance.

 Application of the Law to the Problem / Facts

• As goodwill is acquired through the purchase of a business and constitutes capital expenditure, it is not regarded as a depreciable asset in terms of the Income Tax Act.
• Section 11(e) permits deductions only in respect of qualifying depreciable assets. Given that goodwill is excluded from this category owing to its indefinite useful life, its amortisation does not qualify as a tax-deductible expense.
• Accordingly, the value attributed to goodwill is capitalised and forms part of the base cost for capital gains tax purposes, rather than providing for an annual tax deduction through amortisation or depreciation.

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