Are you the type of person who is trying to create financial freedom for yourself and your family?
Have you made the sensible decision to invest in property as a means of achieving that independence? The good news is that there are a number of tax laws that can work to your benefit and help you to maximise your investment and achieve financial freedom much faster than ever before.
But, unless you are a tax specialist or an attorney, wading into the arena of tax legislation can get pretty deep and confusing. That’s why it is essential to consult with teams you trust who are tax specialists.
For years accountants had advised their clients to claim depreciation on certain moveable assets because they were used in their businesses, like computers and copiers. But there was no provision to depreciate investment property. Without getting into too much complex detail on the background, it is important to note that some forms of structures could claim allowances – for instance hotels could claim 5% depreciation annually under a section of the Income Tax Act.
But buy-to-let properties fell outside this ‘depreciation arrangement’ that hotels enjoyed, even though they were used in the owner’s business until 2008, when section 13sex (yes, that’s right) kicked in.
What section 13sex allows is this – that a developer can write off the cost of all new and unused residential units that they erect after 21 October 2008 at a rate of 5% per annum. This write-off also applies to the cost of new and unused improvements to existing buildings. It’s also important to note that the 5% can be claimed even if the building is acquired on the last day of the tax year.
Those who purchase residential units can also claim an allowance, but it is limited to a total of 55% of the price they paid for the unit. What this means is that if you haven’t built the unit from scratch, you are not the developer, you might purchase it from the developer – but you are still entitled to claim an allowance!
So how can you qualify for this allowance? What are the requirements?
- The unit must be new or unused (including a self-contained apartment) mainly used for residential purposes.
- The unit must be used solely for the trade of the taxpayer – in other words, not for the taxpayer’s personal use.
- The taxpayer must own at least five residential units in South Africa, all of which must be used for the taxpayer’s trade.
- The unit being claimed for must be situated in South Africa.
There are a couple of other points to note –
- The amount of the deduction is limited to the lesser of the actual cost or the market value. This is to prevent unscrupulous taxpayers inflating the price in order to claim higher deductions.
- No allowance is permitted if the taxpayer has claimed for the same property under another section of the act
- Sale proceeds will be subject to normal income tax to the extent that allowances were claimed under section 13sex
When investing your own capital and making financial commitments as you use property investments to grow your wealth it is vital to get the very best tax advice in order to maximise your allowances. For advice and guidance, look to the independent specialists who have the right team of professionals working with them that gives them the track record of success, integrity and security that you want.
The comforting thing about history is that it repeats itself. And in the property investment business this is no exception. Contact us at IGrow Wealth Investments – my team of tax specialists & property strategists and I will help you on the road to achieving the success you deserve, and show you how you can reduce your personal income tax liability substantially while growing your property portfolio at the same time.