Article 13 is the best property-based tax incentive around


What is
article 13?

There is a discrepancy between the supply of reasonably priced rental accommodation and the demand for it – far more people are looking to rent.

In the early 1980s, to incentivise private-sector engagement in low-cost housing, government introduced legislation that allows developers, under certain conditions, to deduct building costs from tax.

The legislation was confirmed and enhanced in the Revenue Laws Amendment Bill 80 of 2008's Article13. The enhancements also partially extend the tax opportunity to buyers of new or unused residential property that is bought to let.

In the memorandum that accompanied the amendment, it was stated that Article 13 recognised the risks inherent in the property market, and the need to encourage the provision of low-cost accommodation.


The effect of the

Effectively, what this means is that since 21 October 2008, developers who qualify are able to write off the cost of all new and unused residential units they erect at an annual rate of 5%. The write-off applies also to the cost of improvements to existing buildings.

Purchasers of residential units are also entitled to the write-off up to 55% of the acquisition price.

Usefully, this allowance is not apportioned for part of year so even if a building is acquired on the last day of a tax year, the full 5% may be claimed as a deduction.


How do I

  • A reminder that the allowance is there to encourage new development, so it only applies to new or unused units or improvements; and
  • It only applies to projects within South Africa.
  • The term “residential unit” refers to any building or self-contained apartment that is mainly used for residential accommodation, with the exclusion of structures used for hotel-like functions (these fall under different legislation).
  • The development or improvement cannot be for personal use: they must be business-related.
  • There is a minimum of five units necessary before the tax claim can be made – this is to encourage substantial projects.

Other facts
worth knowing

There are some provisions in place to prevent tax avoidance:

  • To foil would-be tax avoiders buying or building at inflated prices from connected parties so as to ‘bump up’ the numbers, the amount of the deduction is limited to the lesser of the actual cost or the market value of the residential unit.
  • To prevent ‘double-dipping’ of capital allowances, if you have previously claimed a deduction under another section of the Act, you can’t do so again under Article 13.
  • The allowance is subject to the normal recoupment provisions. If the units are sold, proceeds will be subject to normal income tax to the extent that allowances were claimed.

An excellent article on this subject by Barry Ger, BBusSc LLB BCom (Hon) (Taxation) (UCT), published in the December 2008 issue of De Rebus magazine.
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The SARS documents.
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Work out your own tax savings with our interactive tax calculator.
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