Tax question on depreciation of motor vehicle





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  1. #1
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    Default Tax question on depreciation of motor vehicle

    Sole Proprietor cannot work without a car. Car is in the name of SP (trading as is not a legal person). The sole proprietor also use the car for private purposes and claim variable cost (fuel, services etc) based on a logbook as an expense. Argument that 100% of depreciation can be deducted as expense, since the car, whether it is used or not, is an absolute requirement for business.
    What do you think! please

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    Default Re: Tax question on depreciation of motor vehicle

    Depreciation should also be a variable pro-rata.

    If it was a fully personal vehicle there would be no depreciation benefit.
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    Default Re: Tax question on depreciation of motor vehicle

    Accountants will argue that depriation is always a fixed cost? Accountants help me

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    Default Re: Tax question on depreciation of motor vehicle

    Quote Originally Posted by Williepiet View Post
    Sole Proprietor cannot work without a car. Car is in the name of SP (trading as is not a legal person). The sole proprietor also use the car for private purposes and claim variable cost (fuel, services etc) based on a logbook as an expense. Argument that 100% of depreciation can be deducted as expense, since the car, whether it is used or not, is an absolute requirement for business.
    What do you think! please
    [pedantic mode on] depreciation is an accounting term, you are referring to claiming wear and tear which is a tax term. Same concept but not always the same number [pedantic mode off]

    I have seen people use the SARS tables for taxing travel allowances as the basis for calculating and claiming wear and tear on their vehicles - difficult for SARS to argue when you are using their tables.
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    Default Re: Tax question on depreciation of motor vehicle

    You can claim for repairs etc but not the value of the vehicle depreciating check the options , when I was working I always used the KM traveled , remember one can only claim if the vehicle has done work Km
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    Default Re: Tax question on depreciation of motor vehicle

    Quote Originally Posted by Williepiet View Post
    Sole Proprietor cannot work without a car. Car is in the name of SP (trading as is not a legal person). The sole proprietor also use the car for private purposes and claim variable cost (fuel, services etc) based on a logbook as an expense. Argument that 100% of depreciation can be deducted as expense, since the car, whether it is used or not, is an absolute requirement for business.
    What do you think! please
    Unless the vehicle is used exclusively for business purposes, you wont be able to claim 100% of the wear and tear allowance as a business expense. You can't claim private expenses as tax deduction, so if there are certain costs/items that you use for both business and private (i.e. fuel, telephone), you need to apportion it between private use and business use.

    If you keep a log book, then calculate as follows: Wear&tear allowance x business km for year / total km for year = tax deduction
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  7. #7
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    Default Re: Tax question on depreciation of motor vehicle

    I hear you.
    It has been argued that a SP vs cc and Pty is a grey area. But let us compare.

    This is SP trading as "business Y" vs this "business Ltd" with one director trading as "business Y". The legal person is natural person vs a company. (You can even add partnership! but even a partnership is not a legal entity? the natural persons are). SARS allocated a "unique identifyer" to this SP. The SP pay taxes in his own right and "business Y" under the unique identifyer in his own right.
    Is it even necessary for "business Y" to keep a logbook? If it was "business Ltd" trading as "business Y" is it necessary for "business Y" to keep a logbook?

    In the past this SP claimed depreciation on a proportionate basis but .... what does a company or cc do?

    I know on this forum is a material number of members who can learn from this maybe? What do you guys do?
    Last edited by Williepiet; 2020/01/22 at 06:28 PM.

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    Default Re: Tax question on depreciation of motor vehicle

    One would achieve the same results when working with actual costs (wear and tear , interest & operating costs) whether in a Pty or Sole Proprietor - apply logbook determined ratio of business mileage. One may get slightly different results if owned by a Pty in that one then has the option to use SARS's table of deemed costs as opposed to being limited to only using actual cost method, as a Sole Proprietor is, depending on case by case specifics. And other considerations.
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    Default Re: Tax question on depreciation of motor vehicle

    I think I understand:

    If an exspense (vehicle, telephone, building, eletricity, office etc) is not used exclusively for that business conducted as a private individual, sole proprietary (the SP we speak about is legally compelled to be registered, audited on IFRIS by a IRBA auditor with assurance! (not reviewed), company, partnership etc the expense for that activities such as "private use" must for tax purposes be counted back from total expense on a pro-rata basis.

    Now for the grey areas:

    Vehicle according to logbook based on actual expenses or tax tables. But under certain conditions a SP may not use tax tables. What are those?

    Telephone: Should one count each call? I hear people say they were reviewed without query on a 20% private use which they considered fair.

    Electricity: Floor space seems to be acceptable?

    Renting a house: Claim floorspace % ofrent paid?

    Thanks for all the responses thus far.

    Readers should not take this as tax advise but as a discussion please from which we can learn and take our own decisions based on own research

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    Default Re: Tax question on depreciation of motor vehicle

    When I worked as a Sole Prop I used to depreciate all my vehicles, assume over a 5 year period, 20% per year x % business use.

    I kept a valid log book as proof of business use, in +15 years this was never disputed at SARS, and I did all the taxes..

    So if you used the vehicle for 60% business, the depreciation would be 20% of value x 60%.. (for year x. Year y would be dependent on how much business use it saw on that year, and so on an on..)

    Costs of fuel, insurance, service also made part of the 60% calculation, but those are direct costs and therefore not part of depreciation.

    VAT was claimed on insurance & service / maintenance, obviously not on fuel usage.

    However, remember when you sell the depreciated asset, you have to calculate recoupment of capital allowance (asset?? - cannot remember the term correctly..), and that becomes a cost to you.
    Last edited by Marcochezzi; 2020/01/23 at 08:49 AM.
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  11. #11
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    Default Re: Tax question on depreciation of motor vehicle

    Quote Originally Posted by Williepiet View Post
    I think I understand:


    Vehicle according to logbook based on actual expenses or tax tables. But under certain conditions a SP may not use tax tables. What are those?
    If I understand correctly the tax tables are what you would use to calculate your vehicle deduction (in terms of vehicle value) if you earned a car allowance.

    As a sole prop you do not effectively earn a monthly salary, as your full company profits at end of financial year are deemed your earnings.

    Save yourself the drama, run a logbook, keep all your expenses on spreadsheet and all the supporting documents well filed for ease of reference if an SARS audit is requested, and work out your travel costs the way I referred to in my first post, I can send you examples of what I had done, but it really is dead simple, nothing complex at all..
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    Default Re: Tax question on depreciation of motor vehicle

    Quote Originally Posted by Marcochezzi View Post
    When I worked as a Sole Prop I used to depreciate all my vehicles, assume over a 5 year period, 20% per year x % business use.

    I kept a valid log book as proof of business use, in +15 years this was never disputed at SARS, and I did all the taxes..

    So if you used the vehicle for 60% business, the depreciation would be 20% of value x 60%.. (for year x. Year y would be dependent on how much business use it saw on that year, and so on an on..)

    Costs of fuel, insurance, service also made part of the 60% calculation, but those are direct costs and therefore not part of depreciation.

    VAT was claimed on insurance & service / maintenance, obviously not on fuel usage.

    However, remember when you sell the depreciated asset, you have to calculate recoupment of capital allowance (asset?? - cannot remember the term correctly..), and that becomes a cost to you.
    As suggested in my summary I agree

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    Default Re: Tax question on depreciation of motor vehicle

    Quote Originally Posted by Williepiet View Post
    I think I understand:

    Electricity: Floor space seems to be acceptable?

    Thanks for all the responses thus far.

    Readers should not take this as tax advise but as a discussion please from which we can learn and take our own decisions based on own research
    Yes, but include costs such as rates as well (also as % of floor space), but confirm with SARS if there is a cap to allowable "home office" floor space calculation, I cannot remember..
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  14. #14
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    Default Re: Tax question on depreciation of motor vehicle

    Quote Originally Posted by Marcochezzi View Post
    If I understand correctly the tax tables are what you would use to calculate your vehicle deduction (in terms of vehicle value) if you earned a car allowance.

    As a sole prop you do not effectively earn a monthly salary, as your full company profits at end of financial year are deemed your earnings.

    Save yourself the drama, run a logbook, keep all your expenses on spreadsheet and all the supporting documents well filed for ease of reference if an SARS audit is requested, and work out your travel costs the way I referred to in my first post, I can send you examples of what I had done, but it really is dead simple, nothing complex at all..
    Thanks. Exactly I agree. But still do not understand SARS. Why if a Ltd no logbook is required but for a SP yes.
    I am not in trouble guys. Since 2006 a SP. Been "audited/reviewed" by SARS EVERY YEAR except 2018, in their favour may I add one year my wife (married in community of property, tehrefore 50% partnership in SP) and the next myself!!! Never a change on assesment. 2017 i had to give some documents dating back to 2005. Know the five year, but gave it because it was available.

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    Default Re: Tax question on depreciation of motor vehicle

    Quote Originally Posted by Williepiet View Post
    I think I understand:

    If an exspense (vehicle, telephone, building, eletricity, office etc) is not used exclusively for that business conducted as a private individual, sole proprietary (the SP we speak about is legally compelled to be registered, audited on IFRIS by a IRBA auditor with assurance! (not reviewed), company, partnership etc the expense for that activities such as "private use" must for tax purposes be counted back from total expense on a pro-rata basis.

    Now for the grey areas:

    Vehicle according to logbook based on actual expenses or tax tables. But under certain conditions a SP may not use tax tables. What are those? Are you referring to the deemed expenditure tables for travel allowance? That is only applicable if you receive a travel allowance as part of your salary package. Sole proprietors will always have to use actual expenses as you can't pay yourself a salary

    Telephone: Should one count each call? I hear people say they were reviewed without query on a 20% private use which they considered fair. You can use estimated % addback for private use - have done so for many clients without query from SARS. I think SARS just want to see that you are taking private use into consideration

    Electricity: Floor space seems to be acceptable? Yes

    Renting a house: Claim floorspace % ofrent paid? Yes

    Thanks for all the responses thus far.

    Readers should not take this as tax advise but as a discussion please from which we can learn and take our own decisions based on own research
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    Default Re: Tax question on depreciation of motor vehicle

    I am happy with your red comments. Many thanks guys

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    Default Re: Tax question on depreciation of motor vehicle

    Quote Originally Posted by Williepiet View Post
    Thanks. Exactly I agree. But still do not understand SARS. Why if a Ltd no logbook is required but for a SP yes.
    With a company, the vehicle is deemed to be used exclusively for business purposes, and the company can claim all costs related to the vehicle as a tax deduction.

    You however also have to take into consideration who uses the vehicle, and what the vehicle is used for.

    If a company gives a vehicle to an employee to use, and that vehicle is not use exclusively for business purposes (say company car that employee gets to take home and use outside of business hours), then that employee is taxed on fringe benefit on use of motor vehicle. That is a way to prevent people from putting their private vehicles in a company and claiming the tax deductions on in. The employee also needs to keep a log book, and can get taxed at a lower rate if more than 80% of his travel is for business.
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  18. #18
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    Default Re: Tax question on depreciation of motor vehicle

    Tanks. I understand

    Quote Originally Posted by Jaco Nel View Post
    With a company, the vehicle is deemed to be used exclusively for business purposes, and the company can claim all costs related to the vehicle as a tax deduction.

    You however also have to take into consideration who uses the vehicle, and what the vehicle is used for.

    If a company gives a vehicle to an employee to use, and that vehicle is not use exclusively for business purposes (say company car that employee gets to take home and use outside of business hours), then that employee is taxed on fringe benefit on use of motor vehicle. That is a way to prevent people from putting their private vehicles in a company and claiming the tax deductions on in. The employee also needs to keep a log book, and can get taxed at a lower rate if more than 80% of his travel is for business.

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    Default Re: Tax question on depreciation of motor vehicle

    Why would one do business as a SP rather than register a coy?

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