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SARS: Interpretation Note 74 on Repairs
- 23 May 2023
- Accounting
- South African Accounting Academy
This Note provides guidance on the interpretation and application of section 11(d), which allows a deduction for expenditure incurred on repairs for the purposes of trade.
Expenditure on repairs to an asset not comprising trading stock is likely to be of a capital nature, particularly when it is not incurred at regular intervals. This is because the expenditure relates to the protection of a capital asset.
Expenditure of a capital nature does not qualify as a general deduction under section 11(a). Nevertheless, section 11(d) makes provision for the deduction of expenditure incurred on repairs for the purposes of trade provided the requirements are met.
For purposes of section 11(d) it is important to distinguish between a “repair” and an “improvement” since only expenditure incurred on repairs is deductible under section 11(d). No hard and fast rules can be provided for this distinction. Each case must be decided on its own facts.
Conclusion: In order for an asset to be repaired, there must be damage or deterioration to a part of the original asset or structure and the intention of the taxpayer must be to restore the asset or structure to its original condition. Because there are no set criteria as to what constitutes a repair and only principles derived from case law, each case will have to be determined on its merits.
The cost of repairs may be recovered or recouped under section 8(4)(a) provided that there is a causal link between the cost of the repairs and the amount received or accrued.
This is the 3rd issue and comprises 10 pages.
It deals with Income Tax Act, 1962 Sections 11(d) and 8(4)(a).
Click here to download the Interpretation Note:
Relevance to Auditors, Independent Reviewers & Accountants:
- The Income Tax Act is yet another piece of legislation that your clients should consider, so that they are aware of their rights and responsibilities as well as SARS’ powers.
- As an auditor and independent reviewer, you need to consider interpretations and explanations of relevant tax items, especially those that are published as Interpretation Notes by SARS.
- This Note provides guidance on the interpretation and application of section 11(d), which allows a deduction for expenditure incurred on repairs for the purposes of trade.
- As a taxpayer, you and your practice also need to comply with the Income Tax Act.
Relevance to Your clients:
- A taxpayer should be aware of the contents of the Income Tax Act.
- Taxpayers need to consider interpretations and explanations of relevant tax items, especially those that are published as Interpretation Notes by SARS.
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