Tax and SARS knowledge base
Allowance for new manufacturing assets
Can a business claim an allowance for a new manufacturing asset?
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Direct answer
A manufacturer may have a potential section 12C or other capital-allowance question for a new production asset, but no claim should be made simply because the item sits in a factory. Current SARS material treats section 12C as asset-specific, including the nature and use of qualifying plant or machinery. The applicable provision, asset type, ownership, date first used, manufacturing activity, supporting records and interaction with other allowances must be checked first.
This is a high-value, fact-specific decision. Treat it as a tax workstream from the purchase stage. A good claim file identifies the asset and process in enough detail for a reviewer to understand why the claimed provision, rather than ordinary wear and tear or another allowance, is being used.
What this means in practice
"Manufacturing equipment" is an operational description, not a complete tax classification. A production line, packaging machine, warehouse forklift, electrical installation, laboratory device and office computer may each have different legal and factual questions. Capital spend can also contain several components with different commissioning dates and business uses.
Ask the technical and finance teams to create a fixed-asset evidence pack before the ITR14 cycle begins. The pack should include the purchase order, supplier specification, invoice, delivery record, installation or commissioning certificate, production process description and a statement of where the item is used. It should also show whether the company owns the asset and whether it was new for the relevant allowance purpose.
Do not wait until the tax return is nearly due to ask what an asset does. A short, contemporaneous engineering description is much more persuasive and accurate than a retrospective label copied from a general ledger.
Step-by-step
- List the capital project and its components.
Break a large project into assets or components where their nature, use or commissioning differs. Reconcile the list to capital-work-in-progress, supplier invoices and the fixed-asset register.
- Capture technical and operational evidence.
Obtain equipment specifications, process-flow descriptions, site photographs where appropriate, commissioning certificates and production records. Ask the operational manager to confirm how and when the asset was first used.
- Confirm ownership and acquisition facts.
Keep the agreement, invoice, payment records and any finance or lease documentation. Identify second-hand purchases, related-party transfers and assets acquired as part of a business purchase, because these can change the analysis.
- Identify the relevant current allowance provision.
Use the current SARS material to identify the asset-specific section 12C question, then confirm the current law for the relevant year. The current SARS draft note is useful corroboration but is not final guidance. Review whether another allowance is more appropriate and whether provisions interact. Obtain specialist advice before selecting a rate or period.
- Prepare the calculation and tax reconciliation.
Tie each claimed amount to the evidence pack, tax computation and ITR14 workpapers. Explain why the tax result differs from book depreciation. Do not blend routine repairs or operating costs into the capital allowance calculation.
- Retain proof after filing.
Save the completed calculation, return, assessment and all evidence. Update the asset register for subsequent-year allowances, disposals, insurance recoveries or changes in use.
Documents and records to keep
Keep project approvals, contracts, invoices, engineering specifications, delivery and commissioning records, fixed-asset-register entries, production-flow descriptions, photographs if useful, ownership evidence, tax calculations, ITR14 workpapers and subsequent disposal documents. Maintain a clear audit trail from a claimed line to its source documentation.
Important limits and exceptions
This guide does not prescribe a rate, period or allowance provision. These must be confirmed under the law applicable to the company and year. An asset can be used at a manufacturing site without meeting every requirement for a special allowance.
Do not use this article to decide eligibility for a new project, related-party purchase, imported machine, leased asset or mixed-use installation. Each can need additional analysis. Return completion does not create entitlement if the statutory conditions are not met.
When to get tailored advice
Get advice before filing when capital spend is material, the asset is part of a factory expansion, the supplier relationship is connected, commissioning crossed a year end, or more than one allowance could apply. Obtain help early where an incentive formed part of the investment decision.
TaxProof can help collect the asset evidence and reconcile it to the ITR14. We cannot provide a manufacturing-allowance opinion without full technical and legal facts.