Investors still have access to powerful tax incentives, including the popular Section 13sex of the Income Tax Act No 58 of 1962. This scheme enables any taxpayer who owns five or more new, residential rental units, to claim up to 55% of the purchase price as a tax deduction. (Deductible over 20 years)
How it works
- Purchase five units at R1,5 million each = R7,5 million
- Discount = R375 000 (R75 000 per unit, if purchased on launch)
- Final purchase price = R7,125 million
- Deemed purchase price = 55% of final purchase price (R3,918,750)
5% of the deemed price may be used as a tax deduction (residential building allowance).
This works out to a tax deduction (tax write-off) of R195,937.50 per year for 20 years.
Total tax write off = R3,918,750 (over 20 years)
Taxpayer Criteria for Section 13Sex:
- The taxpayer must own at least 5 residential units. A residential unit refers to a building or self-contained apartment, mainly used for residential accommodation with the exclusion of structures used for business purposes, for example, hotels.
- All units must be situated in South Africa.
- Residential units must be new and unused. (For example, buyers of flats that had previously been occupied would not qualify for this incentive.)
- The units must be used solely for the purpose of trade (i.e. residential letting). This prevents housing claims for personal use.