Income Tax Act offers massive advantages for property investors

Its 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, with clued up investors being able to claim millions of Rands back from SARS.

Coupled with this, innovative new 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.

Rob Stefanutto, who heads up developments for Dogon Group Properties, explains that property buyers can leverage Section 13Sex of the Income Tax 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 of the income tax act can have.”

“The tax write-offs obtainable through Section 13Sex come into effect when property investors buy a minimum of five residential units for rental. Purchasers are then able to off-set their investment by depreciating the cost of the units at an accelerated rate of 5% a year over 20 years.”

Stefanutto offers an example of how effective the 13Sex tax allowance is: “If an investor purchases five new residential units at R1 000 000 each SARS will allow that investor a R2.75 million tax deduction to reduce their tax liability. This equates to an annual tax allowance (for 20 years) of R137,500, taxed at 45% equals R61,875 a year (or effectively R5,156 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 will qualify for the tax incentive.
  • The taxpayer may not live in the property as their primary residence.
  • In addition, the investor must use these units in his trade, which more than likely would be the rental of the property. (This means it’s ideal for buy-to-let investors)
  • The taxpayer must own at least five residential units.
  • The units must be in South Africa.

However, Stefanutto does caution that investors who are purchasing the properties with a view to making a quick profit should 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 in buying with a long-term view the deduction will provide extremely attractive relief in the form of lower tax obligations for the periods that the properties are owned”.

It is advisable that investors who are keen to take advantage of 13Sex consult with their tax specialists before proceeding to ensure that they qualify to claim the incentive.”

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