Deductions - Repair

Question 1

Facts:
A TP drilled a new borehole, erected a windmill for the borehole and installed piping to feed water from the borehole to the dam. This was done as the old borehole did not pump adequate water for farming purposes. The TP regarded the costs as repairs to the old borehole and repairs of the property according to S11(d).

Answer 1

Flemming

Issue:
Are the costs incurred to drill the borehole, erect a windmill and install piping repairs per s11(d)?

Principle:
The expenditure incurred must be as a result of damage or the need to repair an asset that has been subject to use, in order to be classified as a repair. The cost must maintain the income earning ability of the asset, not improve this.

Question 2

Facts:
The original roof of the factory had to be repaired. However, different material (reinforced concrete) was used as a result of the unavailability of the original material used.

Answer 2

African Products Manufacturing Co Ltd

Issue:
Should the amount incurred be regarded as a repair?

Principle:
Repair is restoration. Restoration can either be by replacement or renewal of parts of the whole.
Materials need not be the same.
Repair is different from an improvement which is creating a better asset.

The test is: Has a new asset been created resulting in an increase in the income-earning activity or income-earning potential? If yes, an improvement has taken place which might qualify for capital allowances.