| Who
is eligible for the incentive?
Any investor (including individuals, companies, close
corporations and trusts as well as partners in a partnership)
is eligible for the incentive once the following three
basic conditions are met:
1. The investor must improve an existing building or
erect or construct a new building within the urban development
zone. Where a building is purchased from a developer,
the developer must not have claimed the allowance previously.
In the case of improvements, the expenditure incurred
relating to that improvement must equal to at least
20% of the purchase price of the building.
2. The investor must use the building solely for purposes
of the investor’s trade. The trade can be of any
kind, commercial, industrial or rental of a residential
apartment.
For instance an investor constructing a building for
purposes of leasing it would qualify for the incentive
as well as an investor constructing premises to conduct
a retail business.
An investor living in a portion of a newly constructed
building while leasing another portion would however
be ineligible because the building is not solely used
for trade.
If an investor has two separate buildings on the same
piece of land, personal use of one building will generally
not prevent the investor from claiming the incentive
on the second building if that second building is used
solely for trade.
3. The investor must receive a location certificate
from the municipality confirming that the building is
located within its urban development zone. This will
be attached to the investor’s return when claiming
the urban developments allowance. The certificate of
occupancy is no longer a pre-requisite.
What is the nature of the Incentive?
The incentive provides investors with a tax write-off
for the cost of the improvement of building over time
before actual sale. The goal is to favour refurbishment
of existing buildings rather than replacement or new
buildings and therefore the incentive for improvements
is more generous that for new buildings.
Improvements
An investor who refurbishes or improves an existing
building will receive a 20% straight-line depreciation
write off over a 5-year period once the building is
brought into use.
New buildings
Investors erecting a new building (or extending or
adding to the expense of a building) receive an 11 year
write-off period. This write-off allows for a deduction
of 20% for the first year the building is brought into
use and annual deductions of 8% for each the following
10 years.
How does the incentive reduce my tax?
If an investor qualifies for the tax incentive, any
5-year or 11-year write-off of costs incurred by the
investor is deductible against the entire taxable income
of the investor. No ring fencing applies.
Therefore write-offs for one building can be setoff
against any other income of the investor, regardless
of whether that income relates to the building or the
line of business to which that building relates.
Any excess losses that cannot be fully setoff within
a year are carried forward indefinitely. These excess
losses can be setoff in later years until fully absorbed.
What costs does the allowance cover?
The urban development zone allowance covers all construction
costs related to the erection, extention, additional
or improvement of buildings. Finance and property acquisition
costs do not fall within the incentive. These deductible
costs include a whole range such as water, power, sewage,
drainage, security, sidewalks, landscaping etc.
Proposed area
The area concerned is the city centre of Vereeniging
and includes all the entrances to the city. See
the map for more details.
For more information contact:
Local Economic Development Department
Erika Van Der Walt
E-mail: erikavdw@emfuleni.gov.za
Tel: 016) 950-5524
Cell: 082 775 1393
Fax (016) 950-5633
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