Deducting ‘small assets’ for tax

Often businesses will acquire tools, furniture, equipment or other assets that are not considered material enough to be capitalised based on their accounting policies.

Assets are generally capital in nature and not deductible for tax purposes. Even though small assets are not considered material enough to be capitalised for accounting purposes, they are still considered capital in nature and are not ordinarily deductible for tax purposes.

Some jurisdictions provide a threshold for tax purposes that allows assets less than a certain amount to be claimed once off when the expense is incurred. This is not the case in Namibia.

However, where it can be argued that these assets are used in a manner similar to consumables, for instance, if the assets do not have a useful life of more than one year and are generally consumed or used-up during the course of business, the deductibility may be different.

In such cases you may be able to claim the amount for tax once-off.

Examples

An example may be a construction company buying a wheel barrow that would be used on a project and from past experience they know that the wheel barrow would not be in a working condition after 12 months due to the nature of its use. Another example may be where a restaurant acquires certain cutlery and crockery that is used by the chef but is unlikely to last in the long run.

Thus, where you acquire an asset and it would last longer than 12 months (as normal assets would), this amount would not be deductible for tax once-off even though for accounting you have chosen to recognise it as an expense. Therefore you need to add back the value of the asset on your calculation of taxable income and claim a capital allowance over three years.

Johan Nel is a partner and director at PwC Namibia. This series on tax is published bimonthly on a Monday in Market Watch.