Investors can access 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.
Example:
- Purchase five units at a total purchase price of R6,500,000
- Minus the launch discount = R375 000 (R75 000 per unit, if purchased on launch)
- Final purchase price = R6,125,000
- Deemed purchase price = R3,368,750 (55% of final purchase price)
- 5% of the deemed price may be used as a tax deduction per year
- This results in a tax deduction (tax write-off) of R168 437.5 per year for 20 years.
- Total tax write-off = R3,368,750 (over 20 years).
Taxpayer Criteria for Section 13sex Tax Incentive
- The taxpayer must own at least five residential units. The deal kicks in once the buyer takes ownership of their fifth new unit. 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, such as hotels.
- All units must be situated in South Africa.
- Residential units must have been purchased new and unused. (For example, buyers of previously occupied flats would not qualify for this incentive.)
- The units must be used solely for trade (i.e. residential letting). This prevents housing claims for personal use.
- Please consult your tax advisor for further clarification and information.