Maximising Tax Savings with Section 13ter Deductions
In the realm of South African tax laws, Section 13ter is a valuable tool for property investors looking to maximise their tax savings. This section pertains specifically to deductions in respect of residential buildings, which can significantly impact your taxable income.
Section 13ter allows for deductions on new and unused residential units, provided they meet specific criteria set by the South African Revenue Service (SARS). It’s a lesser-known benefit that can lead to considerable tax relief. Here’s how it works and what you need to know to take full advantage.
Understanding Section 13ter
Section 13ter is designed to incentivise the development of residential properties in South Africa. It provides for a deduction of 5% of the cost of the new and unused residential unit against the taxpayer’s income. If a taxpayer purchases or builds five or more units, they qualify for these deductions.
The deductions apply under certain conditions:
- The units must be new and unused.
- They must be acquired to earn rental income.
- At least five units must be owned by the same taxpayer.
Calculating Your Deductions
To calculate your Section 13ter deduction, you need to determine the cost of the residential units. This includes the cost of construction, any direct costs associated with the acquisition, and improvements made to the property.
The formula for the deduction is straightforward: 5% of the cost of the units can be deducted annually for up to 20 years, provided the property remains unused for any purpose other than rental income.
Examples of Tax Savings
| Number of Units | Cost per Unit (R) | Total Cost (R) | Annual Deduction (5%) |
|---|---|---|---|
| 5 | 500,000 | 2,500,000 | 125,000 |
| 10 | 450,000 | 4,500,000 | 225,000 |
| 15 | 400,000 | 6,000,000 | 300,000 |
As illustrated, if you own 10 residential units each costing R450,000, you can deduct R225,000 from your taxable income annually. Over 20 years, this amounts to significant tax savings.
Practical Advice for Property Investors
To fully benefit from Section 13ter, it’s crucial to plan your property investments strategically:
- Ensure that the residential units meet all SARS requirements.
- Maintain proper records of all costs associated with the acquisition and improvements.
- Consult with a tax professional to identify potential savings and ensure compliance with tax laws.
For detailed information, you can refer to the South African Revenue Service website.
Disclaimer: This information is provided for general guidance and does not constitute financial advice. For a formal tax calculation, please contact Xelous Accountants.
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Section 13ter – Discover how Section 13ter deductions can significantly reduce your taxable income as a property investor in South Africa.
