What is Section 13Sex of the Tax Act?
Article by Denis Dunn & Akashni Weimers
Tax is a tricky subject that almost no one can keep a handle on. The basic premise however is this: the more “good” you do out there, the more incentives you get. The more “bad” you do, the more penalties you get.
Section 13Sex is a tax law that was written to incentivise both investors and developers to continue to invest and develop the property industry.
So how does that happen?
It’s no secret that governments, the world over, are scrambling to keep up with the demand for housing in economies with growing populations.
To assist them achieve this mammoth task, they’ve decided to give owners a tax break for each new property they own.
Example: Angela buys (outright, no bond) 5 residential properties in South Africa that she rents out to tenants each month. She charges R10 000 rental per unit.
She bought each apartment for R500 000 from a developer brand new. She doesn’t live in any of them and only uses them for business.
Her tax write off would be as follows: (R500 000 x 5) x 55% = R1 375 000 over 20 years So wait a second, let’s just be clear about this. Does this mean that Angela can write off R1 375 000 over 20 years? Yes, it does!!!
But there’s a catch! Angela can only write off a % of this tax per annum, not the whole thing all at once. This is not so bad however, considering that what she would have paid in taxes, is now getting reduced by 55% over the term, putting the money back into her pocket.
Now if Section 13Sex did not exist, SARS would take Angela’s rent of R10 000 per month and add that to her taxable salary. This would inflate her salary and place in a higher tax bracket.
Essentially, she’ll be paying more taxes, which is not ideal and completely unnecessary.
With Section 13sex however, she can write off 55% of these taxes. Now she gets to keep the cash in bank over the long-term – a win for both Angela and public services.
Want to know if you qualify for Section 13Sex tax incentives.
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