Tax incentives for property investors » The Gavelry

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Tax incentives for property investors

January 2021

It is a recognized fact that in the investment game, it is the player with access to the best information, who wins in the long run. Making money from an investment often has more avenues of opportunity than just the investment itself, and knowing about these can make a huge difference to your returns.

Here we will explore some of the avenues available to property investors for using SARS income tax breaks to make a profit and built property portfolios.

In an effort to stimulate the economy, governments often give tax incentives to businesses and individuals. These incentives can be given in any industry, including the property sector, and more often than not come as tax breaks and tax discounts.  Due to the South African government’s debt spiraling badly, they have made a number of these incentives available for businesses or individuals who choose to invest in property.

Of course, it’s of paramount importance that you do not rush blindly into an attempt to benefit from these without doing thorough research and/or employing the advice and services of a tax accountant or tax attorney. 

So here is our list of handy tax incentives for property investors:

  1. Section 13 quin

Firstly this incentive can be found in Section 13quin of the Income Tax Act. According to this section of the act, a person is allowed to claim an allowance on a part of the costs, not only from new and unused commercial buildings, but also from improvements to such buildings. This becomes an essential bit of information to take into account when assessing the costs of the purchase or acquisition of commercial immovable property.

Requirements of Section 13 quin:

  • The contract for the purchase, improvement or construction must have been concluded after 1st April, 2007
  • The costs relate to a new and unused commercial building or the improvement thereof
  • The building in question is wholly, or principally, being used for trade during the year of its assessment
  • The building or improvement must be owned by the tax payer
  1. Section 13 sex

This incentive aim is to encourage the building of new properties and use them for business purposes. It allows you to ‘write-off’ a percentage of the cost of buildings or improvements of buildings, bought or built after 21 October 2008.

Requirements of Section 13 sex:

  • You must own a minimum of 5 residential units
  • All units must be located in South Africa
  • Residential units must be new and unused
  • They must be used for the purpose of a trade alone (i.e. residential letting). This requirement ensures housing claims for personal use is not allowed.
  1. Section 13 quat

With many of South Africa’s inner cities suffering under urban decay, Section 13 quat was introduced to counter-act this, while encouraging a healthy property investment appetite in those areas. It offers an accelerated depreciation allowance on the costs of buildings erected, modified or improved, within the urban development zones.

Requirements of Section 13 quat:

  • The building needs to be either a new or renovated building of no less than 1000 square meters
  • The building needs to be in one of the zones identified for development
  • You can only claim either Section 13 SEX or Section 13 QUAT, not both
  • The property must be utilised as a rental property / properties and cannot be claimed on your primary residence

*Note also that this incentive has been extended until March 2021, no later.

  1. Section 12 J

SARS is keenly aware of the fact that small and medium-sized businesses can be the lifeblood of any economy, and Section 12 J aims to stimulate investment, by individuals, into Venture Capital Companies (VCCs) which in turn fund these SMMEs. Under this incentive individuals could receive a tax break of up to 100%, as the entire investment amount can be deducted from your taxable income. This tax refund can in turn be put towards your own property investment.

Requirements include:

You can invest in businesses with a gross asset value of less than R50 million.

Qualifying businesses include (but are not limited to):

  • hotels, lodges, student residences and B&Bs
  • renewable energy businesses
  • mining and contract mining businesses
  • agriculture businesses
  • franchises
  • manufacturers
  • general SMEs

By understanding the various angles and incentives allowed by SARS, you can make the most of your investments. Please also just note, this article merely serves towards making you aware of these incentives and is in no way a complete source of information. As mentioned above, it is imperative that you seek professional tax advice before attempting to apply these.