By Bradley Woolridge, Director at Burns Acutt
Allowances are a critical part of tax efficiency and claiming these costs accurately can make a substantial difference to your tax liability at year end. If you are apprehensive about claiming allowances, there is no need to be, qualified support will make sure that you are utilising them and compliant and I hope I can alleviate part of your worry by sharing some basic insights about allowances with you now.
For a start, items purchased under R7 000 can be expensed in full, so there is never a good reason, from a tax perspective, to capitalise small assets. Anything above R7 000 has to be written off as per the wear and tear allowances allowed by SARS.
MISCONCEPTIONS & TYPES
A common misconception often creeps in to the allowances discussion, which concerns the use of the word “depreciation”. Many will incorrectly claim for “depreciation allowance” when, in fact, depreciation is an accounting term and not suitable for tax purposes. For tax, the correct term to use is “wear and tear allowance”.
Before getting into the different types of allowances, I need to stress the importance of having an updated, detailed fixed-asset register. It needs to list all of the business assets purchased, including their purchase dates and cost, and it needs to show how much has been claimed for both depreciation, as well as wear and tear. Any discrepancies are treated as deferred tax assets or liabilities, and are a completely separate, complex matter which must be dealt with another time.
As far as wear and tear allowances go, there are three different types that come into play. These are:
1. The standard allowances
2. The accelerated allowances
3. Certain special allowances
Standard allowances are for items such as medical theatre equipment, personal computers, delivery vehicles, and oxygen concentrators. Each asset type has a corresponding number of years of wear and tear, and it is key to use these years optimally. Accelerated allowances and special allowances are not often applicable to the medical profession, however it’s worth being aware of them for those occasions when they do.
This article has discussed the allowances available on assets so far. Other commonly referred to allowance are travel and subsistence allowances. This is not looking at what SARS will “allow” as a deduction, but rather what your employer will pay you in addition to your salary to compensate for business expenditure incurred when travelling. Or most often, how you can repay yourself from your practice for the travel that you do.
For local travel, up to R122 can be claimed for incidental costs per day (or part thereof), while R397 can be claimed per day for meals and incidentals. It is very important that receipts be kept and that claims do not exceed the maximum allowance per day.
The standard international travel allowance per day is $215 for meals and incidentals.
Travel expenses depend on various factors, but you will stand to gain the most through efficiently applying the various applicable legislations.
Although accelerated allowances and special allowances are not often applicable to the medical profession, it is important that they be kept front of mind so that they can be implemented when the opportunity arises. Expecting anyone besides qualified accountants to identify such opportunities is probably expecting a little too much, since it requires constant and dedicated monitoring of the business accounting systems and transactions as well as the application of those systems and transactions to the relevant legislation.
A common example I use is the advantage of dealing with numerous medical professionals and working in a space with access to the majority of tax legislation application and changes is the fact that only one example of tax efficiency is needed for that principle to be applied across the entire client base.
It really does make sense to deal with someone who specialising in your profession, just like you often see specialisation in the medical profession itself.
If you are still feeling unsure about what exactly is required for the tax return preparation of your business allowances, then I do hope you will consider contacting Burns Acutt accounting and tax services.