Section 13sex of the Income Tax Act outlines specific criteria and conditions for deductions related to new residential units and improvements. Taxpayers are presented with a valuable opportunity to unlock significant tax benefits, provided they meet the criteria. In this article, we take a look at some of the key provisions of Section 13sex and shed some light on its application.
Understanding the Basics
Section 13sex extends its benefits to taxpayers who invest in the development or improvement of residential units. This section entitles taxpayers to an allowance on a new and unused residential unit or improvements made to a residential unit used for trade purposes. If a taxpayer meets certain requirements, they can deduct an allowance of 5% of the cost they incurred for any new and unused residential unit or any new or unused improvement made to a unit.
Additionally, there is an extra allowance if it meets the criteria for being a low-cost residential unit.
To qualify for the allowance, the unit or improvement must meet certain prerequisites:
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Ownership Requirement: The taxpayer applying for the allowance must be the legal owner of the residential unit or improvement to be eligible for the deduction.
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Usage for Trade: The unit or improvement should be exclusively used for the purposes of the taxpayer’s trade.
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Acquisition or Erection Date: The unit or improvement must have been acquired, or the erection commenced, on or after 21 October 2008.
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Geographical Location: Eligibility extends to units situated within South Africa, ensuring a clear geographical parameter for the application of this benefit.
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Minimum Residential Units: Taxpayers must own at least 5 residential units, all used for trade purposes, to qualify for the specified deduction.
Key Features of Section 13sex
Qualifying Residential Units
Under the act, a residential unit is defined as a building or a self-contained apartment that is mainly used for residential housing. This excludes any building or apartment that is being managed as a hotel. Not every residential property automatically qualifies, and understanding these factors is crucial to determining eligibility.
The act also states that the unit must be “new and unused”. If you buy a residential property that is brand new and hasn't been used as far as you know, you could be eligible for a deduction under section 13sex. Whether the property is still considered new and unused depends on how long the previous owner had it and if it was ever used. Thankfully, even if the property doesn't meet the "new and unused" criteria, any improvements made by the buyer could be considered new and unused. If these improvements meet all the section requirements, they may then qualify for this allowance.
Improvements and Alterations
Beyond new buildings, Section 13sex may also cover certain improvements and alterations to existing residential units. These enhancements can include renovations, upgrades, and other improvements that contribute to the property's value. Importantly, these improvements should align with the criteria specified in the legislation, and it is important to differentiate between an improvement and a repair. Still, this widens the scope of potential deductions, offering taxpayers opportunities to benefit from investments in enhancing their properties.
Compliance with Regulations
Section 13sex of the Income Tax Act offers an avenue for taxpayers to unlock substantial tax benefits. To qualify for the deduction, taxpayers must adhere to any regulations detailed in this section. Compliance is paramount and a thorough understanding of the regulatory framework is necessary to navigate the process seamlessly.
If they meet the specified criteria, individuals and businesses alike can strategically leverage these allowances to their benefit. Consulting with tax professionals can be instrumental in ensuring full compliance and maximising the allowances available to property owners. Contact Booysen Accountants today to find out if you qualify and allow us to guide you through this daunting process to ensure your peace of mind every step of the way.