Depreciation in your tax return

An important thing to keep in mind when doing your annual tax returns is whether any depreciation can be claimed against your earnings. This may seem like a strange thing for a salaried individual to think of, but if you have had to buy a laptop or a piece of equipment for work, it applies to you. If the ‘asset’ purchased ultimately enables the ‘production of income’, you can write the depreciation of that asset off. This depreciation over a tax year is directly taken from the amount of income generated and thus reduces taxable income. Note that this is only on assets required to produce income. That said, even if you are employed by someone else, you are able to do this as long as you had to purchase the asset yourself. In other words, you’ve had to purchase the item and your employer did not provide you with one.

If the value of the asset is below R 7 000 it can be written off in one period. Alternatively it would need to follow the SARS schedules for wear and tear and be written off over time. This is nothing new, but the COVID-induced lockdown has make it more applicable now than ever. Many people have either opted or been asked to work from home and thus have had to purchase items to help them stay productive.

For traders and investors this works the same – as you build your income statement for the year from your trading and investment activities, you can also take depreciation on your assets and equipment used in the production of income into account, and write off depreciation on those assets. For example: a laptop that was purchased and additional screens, etc. This is important to note as it can help knock profits down to a more accurate taxable income for the tax year, and thus reduce the total tax amount payable to SARS.

Keep an eye out for our write up next month in which we will be looking at home office expenses and lockdown expenses that can be used in your annual income tax return.

If you have any questions or would like some assistance with doing your tax return, please contact us and we’ll be happy to help.

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