Real Estate Investor Magazine South Africa February/ March 2020 | Page 59

J
udging from the frequent dispossessions and tax eva-
sion cases opened, people consider the main tax ser-
vices provider (SARS) an unpleasant financial institution
that seeks to siphon money out of their businesses and hin-
der them from reaching their full-blown wealth goals.
A section of the Income Tax Act, Section 13 Sex, offers
massive tax advantages for property investors, with clued up
investors being able to claim millions of rands back from SARS.
This tax incentive allows buy-to-let property investors to write
off a percentage cost of their property investment capital from
SARS for returns.
It allows investors to claim capital on initial investment or
on building improvement investments. Coupled with this,
innovative new property developments and the current
economic climate also provided great opportunities for
property investors to grow their portfolio and take advantage
of SARS’ tax write-offs.
“There are many ways to
minimise tax within your
property portfolio, but no tax
incentive comes close to the
impact Section 13 Sex of the
income tax act can have.”
“The tax write-offs
obtainable through Section
13 Sex comes into effect
when property investors buy
a minimum of five residential
units for rental.”
buildings used for trade not covered by a specific depreciation
regime, such as rental properties, were not entitled to any
depreciation at all despite their business usage.
Head of developments at Dogon Group Properties,
Rob Stefanutto expands on how property buyers can
advantageously leverage Section 13 Sex of the Income Tax
Act 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 13 Sex of the income tax act can have,” says Stefanutto.
“The tax write-offs obtainable through Section 13 Sex comes
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,” adds Stefanutto.

Businesses and organisations often adopt law enforcement
systems that they believe will lead their businesses to
successful growth economically and conceptually. These
systems are often run by different subsidiaries and/or entities,
respectively. In the South African context, various institutions
are responsible for different arms of the state with an ultimate
goal of creating a prosperous and governable South Africa with
principles of integrity and transparency.
Reporting to and regulated by South African Chapter 9
Institution, Auditor General (AG), the South African Revenue
Services (SARS) established the income tax levy, among others.
Levied on all income earning and profit making tax payers,
including individuals, companies and trusts the income tax
levy is imposed by the Income Tax Act 58 of 1962. It is the South
African government’s source of income. In essence, the Income
Tax Act is the source of many other taxes that have their own
particular names, but misunderstood by many people for the
normal income tax.
Advantages of Section 13 Sex
In the past, the rules and regulations relating to claiming tax
allowances on immovable property used for income producing
purposes were not clear or easily understandable. The Act has
always granted depreciation allowances for movable assets
used by taxpayers, but has been selective in granting these
allowances to properties.
Whether an allowance was permissible in respect of such
assets and the amount of such allowance depended on the
specific type of trading sector the property was in. Hotels
could be written off at a rate of 5% per annum whereas capital
expenditure for mining was subject to a 100% allowance. Other

KEY REQUIREMENTS TO
QUALIFY FOR THE 13 SEX:
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.
Investors must use these units in their 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.
Practically, “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),” says Stefanutto.
The tax incentive also allows for a 10% depreciation that is
permitted on cases of low-cost accommodation. According to
the Act, low cost accommodation is defined as a stand-alone
unit that values up to R300 000 or an apartment to the value of
up to R350 000. The additional 5% claim is a bonus for low-cost
units and only applies if the normal 5% deduction is allowed.
The allowance is claimable until the full cost of the unit is
written off.
It is important to note that this incentive cannot be carelessly
used by property investors as a means to make quick profit.
Stefanutto warns that when units are sold, the claim and returns
made in the name of the unit from the date of purchase to that
of the sale are recouped and added to the taxable income of
the investor in that year. There are legal consequences in cases
where traces of fraudulent activities are noticed.
SOURCES South African Taxation Guide, iGrow Wealth
Investments, Dogon Group Properties
SA Real Estate Investor Magazine FEBRUARY/MARCH 2020
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