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Tax write-offs for buy-to-let market

03 Feb 2015

Affordable and quality residential rental units for middle income South Africans can become more accessible if investors capitalise on the tax write-offs for buy-to-let investing in Section 13sex of the Income Tax Act. 

The tax write-offs obtainable through Section 13sex come 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.

This is according to Charles Robertson, CEO of Visual International Holdings, listed on the JSE’s AltX last year, who says their aim is to alert residential property buyers to the little-known tax incentives introduced by Section 13sex. 

He says ever since the South African Revenue Service (SARS) introduced its Section 13sex residential building allowance in 2008, Visual has been working on putting together a product offering that would allow an investor to take maximum advantage of the tax write-off opportunities therein. 

Visual’s value-added offering means the investor does not have to personally deal with all the inevitable legal, financial and property-based legwork, because they handle all that, he says. 

Robertson says that SARS created the Section 13sex legislation specifically to incentivise the investor market to encourage developers to build buy-to-let properties aimed at providing much needed housing for people in the middle income market, most of whom cannot afford to buy their own homes. 

The tax write-offs obtainable through Section 13sex come 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. 

Furthermore, the allowance is not prorated, so a property purchased on the last day of the tax year still qualifies for the full five percent depreciation. 

Robertson says at their developments, they work with a dedicated team of lawyers, accountants and real estate agents to maximise Section 13sex tax advantages for their buyers. 

The tax incentive was introduced to help mitigate the impact of the 2008 global economic recession and actively support the buy-to-let sector of the residential property market. 

“As the economic crisis deepened, banks throughout South Africa tightened their lending criteria and made it increasingly difficult to buy property.” Robertson says they see Section 13sex as a lifeline for middle-income buyers. 

Sales at Visual’s Stellendale Village development in Kuils River outside of Cape Town are a case in point. Consider a buyer with a gross monthly income of R120 000 who invests in five units at a total cost of R2.9 million. With a 90% mortgage, the initial deposit amounts to R285 000. 

Without Section 13sex, the monthly cost for these five units would be R7 800. However, Robertson says the accelerated depreciation allowance brings down the buyer’s tax bill to R6 300 a month, making the effective cost R1 500 a month. That’s a significant saving of over 80%. 

For Robertson, it is important that both Visual and property buyers help to address the significant need for affordable and quality rental properties. In doing so, they believe they are contributing positively to nation-building, he says.

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