Real Estate Investor Magazine South Africa March 2015 | Page 51

Utilising the

FINANCE

UDZ

New tax incentive for CCID
BY CAROLA KOBLITZ

I

t seems one of the South African Revenue Service’s
(SARS’s) best-kept secrets is an incentive that
allows South Africans to reduce their taxes if they,
in turn, invest in developing key urban areas.
The Urban Development Zone (UDZ) tax incentive
was first given life by then Finance Minister Trevor
Manuel in 2003. Not utilised as well as National
Treasury had originally hoped, it was given a revamp
and extended until March 2020.
The UDZ is a complete tax write-off on all building
or renovation costs on properties that are either new
builds or refurbishments, in specified UDZ zones. The
write-off happens against the building owner’s entire
tax bill (whether it is a corporate or personal owner),
and not just relating to the taxable income that arises
from owning a property.
“We are finally starting to see uptake of the UDZ
in the Cape Town Central Business District (CBD),
an area that falls within a demarcated UDZ zone,”
says Rob Kane of Texton Property Investments
(and the Chairman of the Cape Town Central City
Improvement District).
“Initially, the feedback from many developers was
that it took just too long to have your UDZ application
processed. However, it has become far easier. There is
also, of course, the issue of having to pay back your
tax saving should you sell your property in the short
term, but for anyone willing to take a slightly longer
view of their investment the UDZ represents a great
opportunity.”
Stevie Coetzee from PricewaterhouseCoopers
confirms that – aside from the purchase price of the
land or original building - the incentive allows all other
costs incurred in the construction or refurbishment of
a UDZ building to be written off against the owner’s
combined tax bill.
In the case of refurbishments, says Coetzee: “These
include land excavations, demolitions, installing

www.reimag.co.za

ramps, lifts or elevators, parking facilities, landscaping
projects, as well as security infrastructure such as
fencing, cameras and surveillance equipment. However,
the incentive can only be claimed by the end user or
taxpayer of the property, who must use the building
(or part of it) for trade purposes, including residential
rentals.”
The latter of these, notes Kane, is particularly
exciting for the Cape Town CBD: “We have a real
shortage of residential property and the UDZ is a good
incentive for the conversion of underutilised C-Grade
office blocks into new accommodation.”

How does the UDZ work?
New commercial or residential 

Tax incentive of 20% of the total
building cost in the first year that
the building is operational. The
remaining 80% of the qualifying
development costs can be written
off over the following 10 years,
at a rate of 8% of the total
development costs per annum.
This is written off against your
combined taxable income (this
amount can be carried forward).

New low cost housing

A 25% write off in the first year,
followed by 13% for the following
five years, and 10% in the
seventh year after the building
came into use.

Refurbishments
(commercial and residential)

20% written off per annum over
five years.

Refurbishments
(low cost housing)

25% wri