Section 13 quat was introduced into the Income Tax Act in 2003. The allowance has a limited lifespan, as it only applies to buildings taxpayers bring into use for the first time before 31 March 2020.
The aim of the incentive is to promote urban redevelopment, as lessors and owners of properties who bring derelict and obsolete properties in designated areas back onto the market and into use, will be entitled to one of the following capital allowances:
- Refurbishment of an existing building – 20% straight line depreciation allowance over a five-year period, where the existing structural or exterior framework is preserved. Any incidental extension or addition also qualifies for the allowance.
- Construction of new buildings and extension of existing buildings – 11 year write-off period. 20% is claimable in the first year and thereafter 8% of the cost in each of the following 10 years. The deduction is claimable from the year of assessment that the taxpayer brings the building into use for the first time.
The qualifying buildings may be either commercial or residential. There are special provisions, which apply in the case of low-cost residential units, which essentially work on a sliding scale. The taxpayer is obligated to obtain a certificate from the local municipality that confirms that the building is located in an urban development zone. At the time the allowance was first introduced, maps were issued setting out the borders of the urban development zones.
Taxpayers can claim these allowances on buildings that the taxpayer erected or improved, or on buildings he or she has purchased. However, the allowance is not available to developers who acquire the properties as trading stock. It is only applicable to a taxpayer who incurs the expenditure, intends to retain the building and if the following conditions are met:
- The taxpayer must own the building, or part of the building in respect of which the allowance is claimed;
- The building must be used solely for the taxpayer’s trade;
- The building must be located in an urban development zone;
- The erection or building improvements must either be done to the entire building, or to a floor area of at least 1000 square metres;
- The relevant details and certificates must accompany the tax return for the year in which the allowance is claimed.
The section has been amended to cater for taxpayers who purchase a qualifying building from a property developer. However, there are specific requirements that both the developer and purchaser must adhere to for the allowance to be granted. These are available on request.
Given the long times these projects take to complete, developers and taxpayers who wish to qualify for the section 13 quat allowance should take note of the last date of 31 March 2020 to occupy the building.
This article was published in e-taxline: Landlords can grow rich in their sleep.