KB20200422/01: Sage X3 Did you know? – The functionality to allow for relevant tax depreciation plans to depreciate qualifying assets for some small businesses to claim for Wear and Tear allowance

The Receiver of Revenue allows certain small businesses the option to claim Wear and tear allowance over three years (50% / 30% / 20%) if the fixed assets meet the qualifying conditions of sections 11(e) and 12E of the Income Tax Act.

Sage X3 has the functionality to allow for the relevant tax depreciation plan to depreciate qualifying assets according to the above rules, which will assist in more accurate identification and reporting on taxable temporary differences.

  • Firstly, create a custom depreciation method that will allow the rates of 50%/30%/20%
    • Navigate to Setup> Fixed assets> Depreciation methods
      • Click on “New”
      • Enter a 2-character code and description of the method.
      • Select “Rate by annuity” as the Rate application rule
      • Enter 3 as the number of rates and enter the 50/30/20 rates
  • Under the “Data management” section, accept all defaults.
  • Under the “Depreciation rules” section
    • Confirm the Depreciation basis type is “Balance sheet value – salvage value”
    • Enter 3 as the Minimum depreciation duration.
  • Click on create and now you have a new depreciation rule.
  • Now assign the depreciation method to an asset that qualifies for the 50/30/20 Wear and tear allowance
    • Navigate to Fixed assets> Fixed assets> Assets
    • Depending on the business process, either capitalise the relevant expense or create the asset directly. In this example, we assume the following
      • Asset Cost:                                          R100 000
      • Useful life (Company policy)        6 years
      • Qualifies for section 12E                50%/30%/20% (3 years)
  • The first depreciation plan is the legal plan (company policy).  For the Tax plan, select the custom depreciation method and 3 as the useful live and create the asset.

Now when you do a Plan simulation for the Tax plan, notice the system is apportioning the 50% across the first and the last year because the asset was purchased during the year.

  • To depreciate the full 50% in the first year, you will have to Force charge the first year, as followings
    • On the Tax plan line, click on the action button and select “Force charge”.

In the “Fiscal Year charge” field, enter the full 50% amount for the year and click “Ok” and save.

Now when the look at the Plan simulation for the Tax plan, you will get the desired result.

Please note:  This will only work if the correct Tax plan depreciation method was selected upon asset creation.  The system will not allow a “Force change” if you first had to perform a change in depreciation method in the same period.

For more information please contact us on info@sysfinpro.co.za or by phone 012 880 0258.