»
Nov 12, 2007:
SARS has finally accepted that buildings and other permanent structures depreciate in value due to their limited useful life. Therefore, no reason exists for the tax system to wholly exclude commercial buildings from potential tax write-offs for depreciation
South Africans just love “investment” in residential property.
And even though there are so many indicators shouting “cool it”, the endless discussions about the investment potential of residential property market continue. We seem to be determined to breathe life into a lame duck that’s going to take some time before it flies again.
The Absa residential property index looks grim — and it doesn’t even take into account holding costs, transfer duty and estate agents’ commission.
By my calculations it will now take at least a year to claw back just the transfer duty and estate agent’s commission associated with a quick dabble. So you can use the famous Absa index to sell Prozac, but not much else.
The only possible reason I can think of to justify further investment in SA property is to keep the kids or mother-in-law out of your kitchen.
But commercial property is a different matter altogether. For starters, the euphoria ended last year when interest rates increased. The market adjusted downwards almost immediately and now reflects more sober values.
And SARS has finally accepted that buildings and other permanent structures depreciate in value due to their limited useful life. Therefore, no reason exists for the tax system to wholly exclude commercial buildings from potential tax write-offs for depreciation.
The long-awaited depreciation allowance on commercial property is now on the table in Parliament. So, with effect from April 1 2007, taxpayers will be able to claim the Section 13 Quinn allowances of 5% per annum. That’s more like it.
This provision allows for the depreciation of buildings (and improvements thereto) that are used wholly or mainly in the production of income.
However, the provision of residential accommodation is specifically excluded. Therefore, a taxpayer who owns a property for residential lease cannot generally depreciate the building, unless they are fortunate enough to qualify for the Section 13 Ter or section 13 Sept. And there are but a few of those.
Only new and unused buildings (and improvements) will be depreciable under Section 13 Quinn.
Buildings that have been used by the taxpayer prior to April 1 2007 cannot be depreciated and neither can buildings purchased by the taxpayer from a seller who used the building prior to the sale.
This is going to make quite an interesting addition to the “new versus old” property debate.
So now the taxpayer can enter the commercial property market with no Transfer Duty as commercial property transactions are VAT leviable (and reclaimable). Thereafter the taxpayer enjoys tax allowances over the period of investment.
Now that’s a whole lot more interesting than the residential property market.
