Investing in real estate can offer you a means of generating passive income, allowing you to earn money without active involvement in work.
South African taxpayers can benefit from a significant tax incentive provided by Section 13 of the Income Tax Act (No 58 of 1962), specifically tailored to residential properties.
Under Section 13 of the Income Tax Act No. 58 of 1962, the South African Revenue Service (SARS) offers substantial tax benefits to individuals who purchase new, unused residential units, or those who enhance residential units acquired or constructed after October 21, 2008.
The primary objective is to encourage investment in residential properties to increase the housing supply while enabling investors to recover a portion of their purchase price through tax deductions.
It's essential to clarify that this tax incentive involves a deduction against your personal income tax. SARS doesn't provide direct cashback; instead, it results in a reduction in your overall tax liability.
QUALIFICATION REQUIREMENTS:
To qualify for this tax incentive, the following conditions must be met:
- Ownership of at least five residential properties, which need not be acquired simultaneously. However, the tax benefit only applies after the investor has taken possession of all five properties.
- One individual or entity with a single tax number must be the owner of all five properties.
- All five units must be designated for rental purposes, meaning the owner and their family cannot occupy these units.
- All units must be located in South Africa.
- The investment properties must be new and unused, with the owner or their rental agent being the first to place a tenant in these units. This implies buying a unit in a new complex from a developer.
PROPERTY TYPES:
SARS categorizes two property types differently for tax purposes. You can choose the one that best aligns with your investment portfolio:
1. SECTIONAL TITLE:
In this arrangement, you don't own the land beneath the property, and property walls are shared with neighbours. Everything inside your sectional title unit is your responsibility. SARS permits a 55% tax benefit on the property's purchase price, claimed over a 20-year period.
2. FULL TITLE:
With full title properties, you own both the building and the land. Taxpayers can only claim depreciation on the building portion since the land is not considered to depreciate. Depending on the land cost, you may claim up to 80% of the building cost over a 20-year period.
REFUND CONSIDERATIONS:
If you sell one or more of the five properties before the 20-year claiming period ends, you will be required to repay a portion of the tax benefits claimed to SARS. Professional tax advisors should assist you in calculating the amount to be repaid.
To maximize the benefits offered by Section 13, it is crucial to view property purchases as long-term investments, ensuring the most favourable tax relief outcomes.
For more information, contact INTRO REAL ESTATE, it’s the right choice.
