It’s important to look at the tax implications of any investment – especially when developing your property portfolio. Fortunately, while you cannot escape taxation, there are tax incentives from SARS that make property investment a very attractive way to grow your wealth.
Section 13Sex of the Income Tax Act
SARS is often treated like a threat to investors, yet Section 13Sex of the Income Tax Act works very much in favour of buy-to-let investors in South Africa. In fact, SARS views your strategy as beneficial to the country, supporting economic growth, jobs and housing – which is why this tax incentive exists, as a reward.
How to qualify
- The property must be new and must be a residential property – for example, an apartment bought directly from the developers.
- The property must be used solely as an investment by the taxpayer. It cannot be your primary residence, which makes it a good fit for buy-to-rent investors.
- The taxpayer must own 5 residences (you don’t need to buy all of them at the same time or in the same development) and they must be located in South Africa.
- The incentive is over a 20-year period.
What are the benefits?
Once a taxpayer has met these requirements, they qualify for a minimum of 55% of the purchase price as a tax deduction. For example, if each of your five investment properties cost you R1 million (R5 million in total), SARS would allow you to a R2.75 million tax deduction on your tax liability. Over 20 years, this means an additional tax allowance of R61,875 a year, every year.
As you can see, by using this incentive along with other concessions and rebates, you could build your property portfolio effectively tax-free and build your wealth effectively for retirement.
Jason Scholtz is the CEO at Envision Investments and a leader in the property and strategic investments industry in South Africa. For more investor tips and an insider’s look into the South African market, be sure to get in touch, keep an eye on this blog or visit http://www.envisioninvestments.co.za/