It is NOT often that tax is associated with anything pleasant. However a section of the Income Tax Act - Section 13sex - offers massive tax advantages for property investors.
Using it, clued-up investors are able to claim millions of rand back from the South African Revenue Service (SARS).
Coupled with this, innovative property developments and the current economic climate have also provided great opportunities for property investors to grow their portfolio and take advantage of SARS’ tax write-offs, says Rob Stefanutto, who heads developments for Dogon Group Properties.
He says property buyers can leverage Section 13sex of the act in their favour to get tax returns from their buy-to-let property portfolios.
“There are many ways to minimise tax within your property portfolio, but no tax incentive comes close to the impact Section 13sex can have.
“The tax write-offs obtainable through this section come into effect when property investors buy a minimum of five residential units to let. Purchasers are able to off-set their investment by depreciating the cost of the units at an accelerated rate of 5% a year over 20 years.”
Offering an example of the efficacy of this tax allowance, Stefanutto says: “If an investor purchases five new residential units at R1million each, SARS will allow that investor a R2.75m tax deduction to reduce their tax liability. This equates to an annual tax allowance (for 20 years) of R137500. Taxed at 45%, this equals R61875 a year, or effectively R5156 a month.”
There are several key requirements to qualify for the 13sex tax incentive:
- The units must be new. No existing or second-hand properties qualify for the tax incentive.
- The taxpayer may not live in the property as their primary residence.
- The investor must use these units in his trade, which more than likely would be rental of the property. (This means it is ideal for buy-to-let investors).
- The taxpayer must own at least five residential units.
- The units must be in South Africa.
However, Stefanutto cautions investors purchasing the properties to make a quick profit to not claim this deduction, because when a unit is sold, the deductions claimed under this section (from the purchase date to the date of sale) must be recouped and added to the taxable income of the investor in that year.
“If the investor is buying with a long-term view, the deduction will provide attractive relief in the form of lower tax obligations for the periods the properties are owned.”
He says investors who are keen to take advantage of 13sex should consult tax specialists before proceeding to ensure they qualify to claim the incentive.