[Question] Profit on sale of vehicle

[StephanieB]

I sold a vehicle with a profit of R43000. I have entered it into my books as Profit on Sale of Asset. But now i would like to know do I need to pay tax on this profit together with the profit I generated from my small business. I have a small tax calculation that I always do, so that it can prepare me for what I need to pay (or hopefully get something back) but with this profit on the vehicle I am not sure how to enter a formula. Is there perhaps anybody that can advise me if I am on the right track.

Thanks so much for your expertise in advance.

[Dave A]

Unless you've managed to sell it for more than you bought it for, and you're not in the business of buying and selling cars, I suggest provide for being taxed on it as normal operating profit. That way if it can get treated as a capital gain (never been in that happy position, but I expect it can arise) you're in for a windfall.

By my understanding, the problem with a capital gain claim is you first have to offset the recovery of allowed depreciation you have claimed on the asset which will be taxed as standard taxable income.

[Mark Atkinson]

Hi Stephanie,

First of all, just bear in mind that your tax computation is completely separate from your profit/loss calculation of your business.

As an accounting transaction, you depreciate your assets (vehicle) over their useful lives. SARS' version of depreciation is wear and tear. I'm not sure what your depreciation policy is in comparison to SARS' wear & tear allowance.

You are taxed on SARS' computation of the recoupment (profit) of the vehicle. This is calculated as follows:

Selling price of the asset (limited to cost)
less: Tax base of the asset (Cost less accumulated Wear & Tear allowances)
= Recoupment

The recoupment is included in your taxable income and is fully taxable.

As Dave suggested, if you sold for more than the cost of the asset, you may be liable for Capital Gains Tax. (This is tax only on the portion of profit above the cost price).

If you sold for more than cost, let me know and we can talk about the Capital Gains effects.

[geraldenek]

I sold a vehicle with a profit of R43000.

Are you trading in a cc/pty and if so did you sell the vehicle to yourself?

[StephanieB]

Thanks, I am trading as a sole proprietor.

[Jan Blom]

Are you trading in a cc/pty and if so did you sell the vehicle to yourself?

I know this thread is seriously old but please advise what is the relevance of selling to yourself if you are the sole shareholder in a pty?

[Andromeda]

Hi Jan, there isn't any, provided it is a transaction at arms length.

I do know of cases where a company sells a fully depreciated mv at R1.00 to a director / shareholder. Although the chances of it being challenged are remote, it is definitely not arms length.

[Jan Blom]

Got you. tx