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Q
What is the difference between Sec13 sex Tax and Capital gains tax ?
A
Sec 13sex Income Tax Act :
Sec 13sex of the Income Tax Act allows for a Taxpayer , who owns at least 5 residential properties within South Africa or makes improvements to a residential unit , on or after 21 October 2008 , to claim a 5 % depreciation allowance per annum over 20 years . These units must be used by the Taxpayer solely for the purposes of a trade carried on by the Taxpayer ( i . e . residential letting ) and must be new and unused residential units .
WAYNE KERSHAW iProtect
An example of how this is applied in practice is as follows : Taxpayer X owns 6 residential units that he purchased from a developer with the sole purpose to rent out the units . The units were acquired for R5 million each . The Taxpayer will be allowed a deduction of R250 000 per annum from his taxable income for each unit that he owns ( R5 000 000 x 5 % = R250 000 ). The calculation is based on the lesser of the actual cost incurred or the market value on the date at which the units were acquired .
Capital Gains Tax :
Taxpayers are afforded a primary residence exclusion of R2 million of any capital gain as provided for in Part VII of the Eighth Schedule to the Income Tax Act . Taxpayers are allowed a further exemption of R40 000 per annum on any other Capital Gains . Capital Gains Tax is applicable to the disposal of any Asset after the 1 st October 2001 . Individuals and Companies are taxed at an effective rate of 18 % of the capital gain whilst Trusts are taxed at an effective rate of 36 %. The capital gain is calculated by taking the market value / selling price of the asset less the base cost thereof plus any improvements . A Taxpayer can only offset a previous year ’ s assessed capital loss from the current capital gain . Please note that the primary residence exclusion only applies to the home that you reside in and the exemption is not applicable to residential properties in general .
2 SEPTEMBER / OCTOBER 2020 SA Real Estate Investor Magazine