Tax notes: New rules on depreciation, input taxes, repairs

Monday, November 5, 2012

THE Bureau of Internal Revenue (BIR) has recently issued Revenue Regulations (RR) No. 12-2012, which deals with the deductibility of depreciation of motor vehicles and other related expenses and input taxes involved in the transaction.

Under Section 34 of the Tax Code, depreciation is one of the allowed deductions in computing taxable income. This refers to a reasonable allowance for the exhaustion, wear and tear of property used in business.

RR No. 12-2012 specifies that since it cannot be generally presumed that the purchase of a vehicle is a purchase of property used in business, certain guidelines must be followed in order for the depreciation of such purchase to be allowed as deduction from gross income, as well as to enable taxpayers to claim the other expenses and input taxes incurred on said vehicle. In relation to this, the following guidelines shall be observed:

1) No deduction from gross income for depreciation shall be allowed unless the taxpayer substantiates the purchase with sufficient evidence, such as official receipts or other adequate records which contain the following, among others: (i) specific motor vehicle identification number, chassis number, or other registrable identification numbers of the vehicle; (ii) total price of the specific vehicle subject to depreciation; and, (iii) direct connection or relation of the vehicle to the development, management, operation, and/or conduct of the trade or business or profession of the taxpayer;

2) Only one vehicle for land transport is allowed for the use of an official or employee, the value of which should not exceed P2.4 million;

3) No depreciation shall be allowed for yachts, helicopters, airplanes and/or aircrafts, and land vehicles which exceed the above threshold amount, unless the taxpayer’s main line of business is transport operations or lease of transportation equipment and the vehicles purchased are used in said operations;

4) All maintenance expenses on account of non-depreciable vehicles for taxation purposes are disallowed in its entirety; and,

5) The input taxes on purchase of non-depreciable vehicles and all input taxes on maintenance expenses incurred thereon are likewise disallowed for taxation purposes.

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(Source: Punongbayan & Araullo)