Capital Allowances Continued

Farming Equipment
And Buildings
 Objective
Understand Application
• Section 12 B Farming • Use the correct rates
• Section Industrial Buildings • Calculate the correct
• Section 13 Ter Commercial allowances
Buildings • Do examples
• Section 13 Sex Residential
Accommodation
• Section 11 (F) Lease
Premiums
• Section 11 (g) Leasehold
Improvements
 Progress
• Section 11 (d) Repairs
• Section 11(e) Wear and Tear
• Section 11(0) Loss on disposals
• Section 12 C Special Allowances
• Section 12 B Farming
• Section 13 Industrial Buildings
• Section 13 Ter Commercial Buildings
• Section 13 Sex Residential Accommodation
• Section 11 (F) Lease Premiums
• Section 11 (g) Leasehold Improvements
 Section 12 B
1.Farming Plant and Equipment
2.Bio-diesel and Bio-ethanol
3.Trade in the generation of electricity: wind, Sunlight,
gravitational forces, Biomass
 50%/30%/20%
 New or used brought into used for the first time
 Not prorated
 Lesser of cost and market value
 Installation and erection costs included
 Section 13 (7)Industrial Buildings
• Initial Allowance Recouped
• Not only building erected and used by the
taxpayer for Manufacturing or similar process
• Leasehold Improvements allowed 10 years
lease
• Annual Allowance is after the initial allowance
• Wholly and Mainly M or SP < 50 % of area
 Purchased Building

• Used only if the previous person was entitled

• (after 15 /3/61)
• New Building
• Cost < initial Cost
– 82.5 %
– Leasehold improvement more than the contract
price
– Sold building and recoupment set off
– Annual allowance not prorated
 INDUSTRIAL BUILDING RATES
• 1/7/1985- 31/12/1988 • 17.5 % Int. Allowance
• Erected /Commenced
• Before 25 /3/1959 • Nil
• 25/3/59 to 14/3/1961 • 2%
• 15/3/1961 to 31/12/1988 • 5%
• 1/1/1989 to 30/6/1996

• 10 %
• 1/7/1996 to 30/9/1999 and
brought into use before 31/3/2000
• 5%
• 1/10/1999 to date
 13 sex Residential Allowance
• After 21/10/2008
• Residential unit new and unused erected (full capital allowance)
• Residential unit new and unused acquired (partial capital
allowance)
• Improvement new and unused (partial capital allowance)
• Taxpayer must own the unit
• Unit or improvement solely for trade
• In RSA
• At least 5 residential units in RSA for trade
• Full allowance :Normal 5% or Low Cost 10 % not prorated for
portion of the year.
 Section 13 Sex Low Cost Housing
1.) < cost of buildings or apartment x 1% per
month.[ Every year thereafter there is 10 %
escalation on rental income]
2.Cost exclude infrastructure
• Building < R300 000;
• Apartment < R 350 000
 Low Cost Housing
• Cost of Standalone unit < R300 00 0r
Apartment < R300 000
• MARI (Monthly actual rental income) < 1 %
cost of building escalated at 10 % pa
 Example 5
• The taxpayer (individual) erected the residential
buildings which are brought into use on the 1 January
2019.
• 6 units @ R150 000 each erected by the taxpayer.
• Rented for the entire tax year to third parties
• (a) Calculate the capital allowances for 2020 and 2020
if the monthly rental per unit per unit earned is R1250.
• (b) Calculate the capital allowances for 2020 and 2020
if the monthly rental per unit earned is R2250.
 Memo Question 5 (a)
Low Cost Housing 10%
First Test if it Low Cost Housing or Normal Housing

Value Test Value < R300 000

R150 000 < R300 000 Indicates Low Cost Housing

Second Test
Monthly Actual Rental Income (MARI < 1 % of buidng cost

Monthly R1.250 < R1.500 (R150 000 x1 %)

MARI < 1 % of Buiding Cost Indicates Low Cost Housing

Section 13 Sex Allowance is 10 % per annum
Answer
2020 6 flats x R150 000 x 10% 90000 allowance 2020
 Memo Question 5 (b)
Normal Housing 5%
First Test if it Low Cost Housing or Normal Housing

Value Test Value < R300 000

R150 000 < R300 000 Indicates Low Cost Housing

Second Test
Monthly Actual Rental Income (MARI < 1 % of buidng cost Low cost housing rule

Monthly R2.250 > R1.650 (R150 000 x1 %x 1.1 )

MARI >1 % of Buiding Cost Indicates Normal Housing

Section 13 Sex Allowance is 10 % per annum
Answer
2021 6 flats x R150 000 x 5% 45000 allowance 2021
 13 sex Residential Allowance
• If the taxpayer buys the units:
• Lower of cost and Market value on acquisition
• If the taxpayer is not erecting the building
• Buy a unit rather than erecting 55 % of cost
(Cost x 55% x 5% or 10%).
• Buy an improvement 30 % of cost
(Improvement Cost x 30% x 5% or 10%).
 Example 6
• The taxpayer qualifies for residential
allowance on flats of R3 000 000. Calculate the
allowances in the following 6 cases.
Erected Bought Unit Improvement
Bought
(a)Low Cost (c)Low Cost (e)Low Cost
(b)Normal (d)Normal (f)Normal
 MEMO 6
Errectted

(a) Low cost housing 10 % 3 000 000 x 10 % 300000

(b) Normal housing 5 % 3 000 000 x 5 % 150000

Brougt into use (taxpayer did not errect the buildings)

(c) Low cost housing 10 % 3 000 000 x 10 % x 55% 165000

(d) Normal housing 5 % 3 000 000 x 5 %X 55% 82500

Improvement Brougt (taxpayer did not errect the improvement)

(d) Low cost housing 10 % 3 000 000 x 10 % x 30% 90000

(e) Normal housing 5 % 3 000 000 x 5 %X 30% 45000
 Section 11 (f) Lease Premiums
• Amount paid
• Premium for the right of use of Land and
Building; Plant and Equipment; Movie Picture;
Patent
• Must be in the production of income
• Commences when paid
• Period of lease (Max 25 years) include option
period
 Section 11 (f) Lease Premiums
• Apportioned
• Lease terminates the balance is not allowed
• The corresponding amount in Lessor
Sec 11 (g)Leasehold Improvements
• Amount paid
• Must be in the production of income
• Period of lease (Max 25years) Remaining
period of lease after improvement is
completed
• Period/12
• Corresponding income in the lessor’s hands
• Lease terminates the balance is allowed
Sec 11 (g)Leasehold Improvements
• Actual Value> Contract Price (in lease
agreement)
• Allowance base on the contract value
-Excess Building allowance 5 %, no
commercial allowance .
• Value < Contract Price; allowance on value
• Value= Contract Price; allowance on value
 Example

Adapted Tax Work

Exercise 7.5 Book

Sole traders (nstural peson ) has a manufacturing business and has entered a lease agreement with the following terms.
Year end for individauls 28 February
Date the lease was enteed
Commemcement date of the lease is 1 April 2018. into.

Lease term 20 years Total lease term = 20x 12 = 240 months.

Rental R2000 per month from date of completion This is a lease normal rental that the tenant pays the landlord during the lease.

Lease premiun R96 000 paid on 1 April 2018 This is a lease premiun which is a large amount over and above the normal rentals. .

Obligation to build a industrial building at a cost R1 920 000 This is a leasehold improvement after the lease the landord has the beneft of the improvement.

The actual cost R 2 400 000 of the building completed 31 August 2018 This the actual cost to the tenant for te erection of the building.

7.5 (a) Calclate the rental deduced for the year ending 28 February 2019

7.5 (b) Calclate the lease premium deduced for the year ending 28 February 2019

7.5 (c) Calclate the lease hold imrvement deduced for the year ending 28 February 2019

7.5 (d) Calclate the industrial building allowance deduced for the year ending 28 February 2019
 Time Line Workings

1 2 3 4 5 6 7 8 9 10 11 12
Begin Year Date Lease Enentered Date Building Completed Year End
1/3/2018 1/4/2018 31/8/2018 28/2/2019

Number of lease months before the building was erected

Number of months after the building was erected in the current year.
Number of months after the lease was sgned and lease premium paid.
 Memo 7.5 (a)

Section 11 (a) Rental R2000 x 6 = 12000 rental deduction

The rent was payable from the date the building was complete which is 6 months if you look at the time line.
Number of months after the building was erected in the current year = 6 months
 Memo 7.5 (b)

Section 11 (f) Lease premium/ Lease Period

96 0000/ 20 x 11/12 4400 Section 11 (f) deduction

Number of months after the lease was sgned and lease premium paid = 11 months pro -rata 11/12.
 MEMO 7.5 (c)

Section 11 (g) lease hold improvement

Lease hold improvement/ (remaining period of the lease)
[1 920 000/ 19.583] 49021
49021.277 x 6/12= Amount claimed under 11 (g) 49021. Section 11 (g) deduction
Remaining period of the lease afer the buiding was completed: is 20 years less 5 months
Total lease period in months 20 x12= 240
Months excluded 5 months Number of lease months before the building was erected -5
Remaining months from competion 235

Annual 235 /12= 19.583

 MDEMO 7.5 (d)

Section 13 (7) Industrial Allowance

Total cost R2.400.000

Amount 11(g) R1.920.000
R480.000 This is only for the amount in excess of the lessehold improvement amount

R480 000 x 5 % 24000

 7.5 (e) Example
Actual Cost (Cost to Contract Price (In Amount use in
Lessee) lease agreement) 11(g)

R2 600 000 R 2 800 000 R 2 600 000 Calculate the

Section 13
Allowance ?
R2 800 000 R 2 800 000 R 2 800 00 Calculate the
Section 13
Allowance ?
R 4000 000 R 2 800 000 R 2 800 00 Calculate the
Section 13
Allowance ?
 7. 5 (e) Example
Actual Cost (Cost to Contract Price (In Amount use in Difference
Lessee) lease agreement) 11(g)

R2 600 000 R 2 800 000 R 2 600 000 N/A

R2 800 000 R 2 800 000 R 2 800 00 N/a

R 4000 000 R 2 800 000 R 2 800 00 R 1 200 000 x 5

%=60 000
Annual Building
allowance
 13 quin Commercial Building
• 5%
• Purchased or erected
• Not accommodation
• Used in trade or let
• Lower of cost or market value
• Not apportioned
• Sell loses remaining allowance
• After 1/4/2007
 13 quin Commercial Building
• 5%
• Part acquired , not erected or constructed by
the taxpayer
• After 1/10/2008
• Cost x 5 % X 55% of acquisition price or
• Cost x 5 % X 30% of the improvement cost