Example
As an example, take an air-conditioned office building purchased for R100 million. The plant and machinery qualifying for capital allowances might have an apportioned cost of say R20 million. As an illustration this may be written down against tax by approximately R2,800,000 per year for the first five years.
Allowances under section 11(e) of The Income Tax Act No 58 of 1962 are available over agreed and approved write-off periods, in line with SARS Interpretation Note No. 47 on a straight-line basis.
With the current tax rate on companies of 28%, the saving to the investor's tax bill will be R784,000 in the first year alone, with an overall saving in the first five years of R3,920,000 in this example.
| Year |
Wear & Tear
Allowances
R |
Annual
Write-Down
R |
Tax Relief to a
28% Taxpayer
R |
| 1 |
20,000,000 |
2,800,000 |
784,000 |
| 2 |
|
2,800,000 |
784,000 |
| 3 |
|
2,800,000 |
784,000 |
| 4 |
|
2,800,000 |
784,000 |
| 5 |
|
2,800,000 |
784,000 |
If this property has an 9% yield, it will be equivalent to only 6.48% after 28% tax. Capital allowances relief of R784,000 in the first year has the effect of increasing the net yield to 7.26%.