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Deduction of expenditure on repairs

Wednesday, 29 January 2014   (0 Comments)
Posted by: Author: Tasneem Gangat
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Author: Tasneem Gangat (Grant Thornton)

SARS released an Interpretation Note on 6 August 2013, which seeks to shed some light on the interpretation of section 11(d) of the Income Tax Act. Section 11(d) makes provision for the deduction (subject to specific requirements) of expenditure incurred on repairs for the purposes of a taxpayer’s trade.

The general deduction formula only allows deductions that don’t relate to expenditure of a capital nature and it is therefore important to distinguish between a "repair” and an "improvement,” since only expenditure incurred on repairs is deductible.

Defining "repairs”

The Act does not contain a definition of the word "repair” and it must therefore be given its ordinary grammatical meaning. The Oxford English Dictionary defines "repair” as follows:

"Restore (a structure, machine etc.) to unimpaired condition by replacing or fixing worn or damaged parts; mend.”

The word "repair” often causes confusion in this context. The following principles have emerged from various court cases, notably ITC 61711, where the court laid down certain guidelines which may be used to establish whether "repairs” for the purposes of section 11(d) have in fact been affected. These guidelines are as follows:

  • A repair is restoration by renewal or replacement of subsidiary parts of the whole.
  • Renewal, as distinguished from repair, is reconstruction of the entirety.In the case of repairs through renewal, it is not necessary that the materials used should be identical with the materials replaced.
  • Repairs are to be distinguished from improvements. 

What about maintenance? 

The question of whether "repairs” in the context of section 11(d) includes maintenance is often raised. According to SARS, expenditure incurred in respect of maintenance will be deductible under section 11(d), only if the maintenance complies with the essential elements of a repair.

Maintenance requires keeping the asset in good working order and condition, which implies that it has become defaced or worn out through use or wear and tear.

The following general principles should be considered when distinguishing between repairs and improvements:

  • Has a new asset been created, resulting in an increase in the income-earning capacity or does the work undertaken merely represent the cost of restoring the asset to a state in which it will continue to earn income as before?
  • Replacing something solely for aesthetic reasons may not constitute a repair.Materials used for the repair need not be identical to the original materials that are being replaced.
  • Repairs undertaken at the same time as improvements may qualify for deduction under section 11(d), if these can be clearly and separately identified from the improvements.
  • The addition of something to an asset that was not previously there will usually be considered to be an improvement rather than a repair.


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. As there are no set criteria as to what constitutes a repair and there are only principles derived from case law, each case will have to be determined on its own merits. Furthermore, the onus is on the taxpayer to show that what was undertaken was a repair.

We recommend that if major repairs are contemplated, to consider the tax consequences in advance and allow for proper structuring and documentation.

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