Property investment enables you to generate a passive income. This means that you can earn money you don’t have to work for.
Did you know you can reduce your tax liability through property investments?
One of the biggest Tax Incentives for property investors in South Africa is Section 13sex of the SA Income Tax Act.
The tax incentive enables a qualifying property investor to claim back from SARS up to 55% of the purchase price of the property or apartment over 20 years. This has a huge impact on the portfolio’s Return on Investment.
As a result, a property investor can be in a Cash Flow Positive and Profitable situation without having to pay SARS a cent. For the purpose of calculating the deduction, the cost of acquiring a residential unit is deemed to be 55% of the purchase. The main requirements to qualify for this allowance are that the taxpayer must own at least 5 residential units situated in South Africa, which must be used by the taxpayer solely for the purposes of their trade, and these units must be acquired on or after 21 October 2008. The deduction of 5% per annum over 20 years is applicable only to new and unused units.
If you are planning to build your property portfolio or already own 5 or more properties please complete the questionnaire below and we will arrange for an online consultation whereby one of our experts will assist you with your personal wealth plan free of charge and discuss the benefits of Section 13sex of the SA Income Tax Act.
SARS UNKNOWN Tax Secret – Section 13sex – made easy!
We all know SARS does not offer us much in terms of giving us money back. Well, a little-known fact is that they have a Tax Incentive called Section 13sex where they offer us a significant tax benefit on residential property under the Income Tax Act No. 58 of 1962.
How does Section 13sex work, you ask? This incentive offers purchasers of residential units to write off a percentage of the cost of buildings acquired after 21 October 2008. SARS would like to incentivise the investor to purchase investment properties to supply accommodation and in return give them a percentage back of the purchase price.
Now down to the nitty-gritty. Certain requirements need to be met to qualify for this incentive, herewith is a short breakdown:
- The Investor needs to own at least 5 residential properties. This does not have to be purchased at the same time, although only once the 5th property has been acquired, the Tax Incentive will come into play.
- All 5 these units need to be used for rental purposes, this means that the owner and his family cannot stay in these units themselves
- All units must be in South Africa, as this incentive will only apply to a South African Tax Payer
- These properties need to be new and unused, which means that the owner (or rental agent of the owner) must be the first person to place a tenant in these units.
- SARS requires one person with one tax number to be the owner of these 5 properties. In the case that you are married in community of property, you and your spouse will each have their own tax number and you will not qualify for this incentive. There are ways to get around this, please ask me how.
There are two different types of properties that SARS will look at in two different ways. The Investor can decide which option will fit their portfolio the best in terms of the Tax Incentive.
- Sectional Title – here you don’t own the land that the property is built upon and you share your walls with your neighbours. Everything that is inside of your walls of the Sectional Title unit is yours. This mainly pertains but is not limited to flats, or apartments as some may call them. Some row-houses or duplex properties might also be part of this type of property. When you own one of these Sectional Title properties, SARS offers you 55% back on the Purchase Price of the property, claimed back over a period of 20 years.
- Full Title – this is where you own the building AND the land. In this instance, Tax Payers may only claim the building portion of the property as the land that it is built on, does not depreciate. Therefore it could add up to 80% of the building cost, depending on the cost of the land, claimed back over a period of 20 years.
Some points to take note of:
- Please note that should a property be sold before the 20-year claiming period has expired, the normal recoupment provisions will apply. This means that you need to refund SARS and a professional Tax Advisor will be able to assist you in terms of the calculations hereto.
- The SARS incentive is used as a deduction on your personal income tax (or the income tax of your Company should the properties be purchased in this entity). SARS is not offering you a cashback, you are paying less tax.
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