A business expense is tax deductible in South Africa if it was actually incurred in the production of income, in the carrying on of a trade, and is not capital or private in nature. That is the general deduction formula in section 11(a) read with section 23. If an expense fails any one of those three tests, it is not deductible — regardless of how necessary it felt at the time.
Most small businesses both over-claim and under-claim at the same time: over-claiming on things that are private or capital, and under-claiming on legitimate costs nobody thought to put through the books. This guide sets out the test, then what actually qualifies.
TL;DR
The three-part test:
Actually incurred — a real, unconditional legal obligation, not a provision or an estimate
In the production of income — connected to earning taxable income
Not capital in nature, and not private or domestic
Capital items are not deductible, but you claim wear and tear over time instead.
Private portions must be apportioned out.
Fines and penalties are never deductible.
Income tax and VAT ask different questions — an expense can be deductible for income tax while its VAT is denied.
Keep records for five years.
The general deduction formula
Section 11(a) allows a deduction for expenditure and losses actually incurred in the production of income, provided it is not of a capital nature. Section 23 then denies deductions for private or domestic expenses, and for a list of specific items.
"Actually incurred"
The obligation must be real and unconditional in the year of assessment. This is why provisions are generally not deductible — a provision for future repairs, future bonuses that are not yet contractually owed, or a general bad debt provision is an estimate, not an incurred liability.
Note that "incurred" is not "paid". An invoice received and owing at year-end is incurred, even if you pay it in April.
"In the production of income"
There must be a genuine connection between the expense and earning taxable income. The test looks at the purpose of the expenditure and how closely it is linked to income-earning operations.
Expenses relating to exempt income are not deductible, which is the mirror of the VAT position on exempt supplies.
"Not of a capital nature"
This is the line that causes most argument. Broadly, expenditure that creates or improves an enduring asset is capital; expenditure that keeps the business running is revenue.
| Revenue — deductible now | Capital — not deductible, claim wear and tear |
|---|---|
| Repairing a leaking roof | Replacing the whole roof with a better one |
| Servicing a machine | Buying the machine |
| Replacing worn tyres | Buying the vehicle |
| Rent | Buying the premises |
| Repainting | Building an extension |
| Software subscription | Developing bespoke software |
Repairs versus improvements is the classic dispute. Restoring an asset to its previous condition is a repair. Making it better than it was is an improvement, and therefore capital.
What is normally deductible
Premises and occupancy Rent · rates and municipal charges · electricity and water · security · cleaning · repairs and maintenance · insurance on business premises
Staff costs Salaries and wages · bonuses that are contractually incurred · employer UIF and SDL contributions · employer retirement fund contributions · recruitment fees · staff training that maintains existing skills · protective clothing and uniforms
Professional and financial Accounting, bookkeeping and audit fees · legal fees relating to trading operations · consulting fees · bank charges · interest on borrowings used for income-producing purposes · short-term insurance premiums
Operations Trading stock and raw materials · consumables · courier, freight and delivery · packaging · subcontractor costs
Technology and marketing Software subscriptions · website hosting and maintenance · telephone, mobile and internet on the business portion · advertising and marketing · design and print
Travel Business travel — flights, accommodation, car hire · vehicle running costs on the business portion, with a logbook · tolls and parking on business trips
Finance and losses Bad debts actually written off, where the debt was previously included in income · doubtful debt allowances under the prescribed formula
What is not deductible
| Not deductible | Why |
|---|---|
| Fines and penalties, including SARS penalties and traffic fines | Specifically denied |
| Private and domestic expenses | Denied by section 23 |
| Capital expenditure | Not revenue — claim wear and tear instead |
| Dividends paid | A distribution of profit, not an expense |
| Provisions and general reserves | Not actually incurred |
| Expenses producing exempt income | Fails the production-of-income test |
| Domestic or private portion of mixed expenses | Must be apportioned out |
| Bribes and unlawful payments | Specifically denied |
| Your own drawings | A distribution, not remuneration, unless run through payroll |
Entertainment is the confusing one. Entertainment that is genuinely in the production of income is generally deductible for income tax, but the VAT on it is denied. Two different systems, two different answers, and treating them as one is a common source of error. See the expenses you can never claim VAT on.
Capital assets: wear and tear instead
You do not deduct the cost of a capital asset in the year you buy it. You claim a wear and tear allowance over the asset's write-off period.
SARS publishes write-off periods for common assets in Binding General Ruling 7. Typical examples:
| Asset | Typical write-off period |
|---|---|
| Computers | 3 years |
| Computer software (purchased) | 2 years |
| Office furniture and fittings | 6 years |
| Motor vehicles | 5 years |
| Delivery vehicles | 4 years |
| Air conditioners | 6 years |
Two accelerations worth knowing:
Small-item write-off. Assets costing less than the prescribed small-value threshold can generally be written off in full in the year of acquisition rather than depreciated.
Section 12E for Small Business Corporations. If your company qualifies as an SBC, qualifying manufacturing assets are written off 100% in year one, and other qualifying assets over three years on a 50/30/20 basis. For an SBC buying R400,000 of plant, that is roughly R108,000 of tax deferred into the current year. See company tax rates in South Africa.
Mixed-use expenses: apportion, do not guess
Where an expense serves both business and private purposes, only the business portion is deductible.
Vehicle. A logbook is not optional — no logbook, no claim. Record opening and closing odometer readings, and every business trip with date, destination and purpose. The business percentage then applies to running costs.
Cellphone and internet. A documented, reasonable and consistently applied percentage. An itemised bill for a representative month supports the figure far better than a round number chosen at year-end.
Home office. Section 23(b) has specific requirements: the part of the home must be specifically equipped for trade purposes and regularly and exclusively used for that purpose. Apportionment is normally on floor area. Be aware there is a capital gains consequence — the portion of your home used for trade loses part of the primary residence exclusion when you sell.
The rule that saves you in an audit: write down the method, apply it consistently, and keep the working. An unexplained percentage looks arbitrary; a documented method looks like a policy.
The expenses SARS most often disallows
From real verifications, the recurring findings:
Vehicle costs with no logbook. The most common finding by a distance. The claim fails on documentation, not on principle.
"Consulting fees" with no invoice or contract. Particularly where paid to a connected person.
Improvements claimed as repairs. A full roof replacement described as maintenance.
Private expenses on the business card. Groceries, personal travel, family cellphones.
Home office claims failing the exclusivity test. A dining table is not specifically equipped and regularly and exclusively used.
Provisions and accruals with no underlying obligation.
Bad debts written off with no evidence that the debt was ever included in income, or that recovery was genuinely pursued.
Round-number expenses. R60,000 of "sundries" invites a question that R58,432.17 of itemised costs does not.
Timing: what to do before year-end
Deductions are claimed in the year the expense is incurred, which makes the weeks before year-end genuinely worth attention.
Bring forward genuinely needed purchases. Equipment brought into use before year-end starts its wear and tear that year.
Write off bad debts that are genuinely irrecoverable, with evidence of the recovery attempts.
Declare and incur bonuses before year-end where they are contractually owed — a bonus not yet incurred is a provision and is not deductible.
Make retirement fund contributions before your personal year-end. The deduction is 27.5% of the greater of remuneration or taxable income, capped at R430,000 for 2026/27.
Do not buy things you do not need. Spending R100,000 to save R27,000 of tax leaves you R73,000 poorer. This is the most common bad advice in South African small business.
Frequently asked questions
What business expenses are tax deductible in South Africa? Expenses actually incurred in the production of income, in carrying on a trade, that are not of a capital nature and not private or domestic. That covers most ordinary running costs including rent, salaries, professional fees, stock, marketing, insurance, bank charges and the business portion of mixed-use costs.
Can I deduct the cost of equipment I bought this year? Not in full, generally. Capital assets are written off over their useful life through wear and tear allowances rather than deducted in the year of purchase. Small-value items can often be written off immediately, and a qualifying Small Business Corporation can write off manufacturing assets 100% in year one and other assets on a 50/30/20 basis.
Are traffic fines and SARS penalties deductible? No. Fines and penalties are specifically not deductible, including SARS administrative penalties and traffic fines incurred by staff on business trips.
Can I claim expenses paid before the business started trading? Pre-trade expenditure has its own regime. Certain qualifying pre-trade expenses can be deducted, but only against income from that trade once it commences, and specific conditions apply.
Is a provision for future costs deductible? Generally no. The expense must be actually incurred, meaning an unconditional legal obligation exists. General provisions, reserves and estimates of future costs fail that test.
Do I need a logbook to claim vehicle expenses? Yes, in practice. Vehicle claims without a logbook are the single most commonly disallowed deduction in SARS verifications. Record opening and closing readings for the year and every business trip with date, destination and purpose.
Is entertainment deductible for income tax? Entertainment genuinely incurred in the production of income is generally deductible for income tax, even though the input VAT on it is specifically denied. The two systems apply different tests, and it is a mistake to assume the VAT answer settles the income tax answer.
How long must I keep records supporting deductions? Five years. SARS can request supporting documents for any deduction claimed, and a deduction you cannot evidence is a deduction you will lose.
Claim everything you are entitled to, and nothing you are not
Both errors cost money. Over-claiming produces an assessment with penalties and interest at 10.25%. Under-claiming just quietly costs you 27% of every expense nobody put through the books — which, across a year of software subscriptions, home office costs and business use of personal accounts, is often the larger number.
Smartbook processes expenses monthly rather than reconstructing them at year-end, applies documented apportionment for mixed-use costs, and maintains the fixed asset register that drives the wear and tear claim.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Write-off periods shown are typical examples; confirm the applicable period for a specific asset against SARS Binding General Ruling 7. General guidance, not advice on your circumstances.
Primary sources: SARS — Income Tax · SARS — Budget 2026 Frequently Asked Questions · SARS — Small Businesses Taxpayers · SARS — Interpretation Notes