unit trust that invests in immovable property, receives income from rental and
pays it through to its investors. In terms of new legislation which becomes effective
1 April 2013, a REIT can deduct such distributions if it resides in South
Africa, is listed and at least 75% of its gross income is rental income.
has been much concern that this regime is going to leave unlisted REITS
horribly exposed, particularly when SARS looks to introduce legislation to deal
with what is today described as artificial debt. This really relates to the
debenture portion of a property linked unit, where the debt instrument is not
likely to be repaid in 30 years. SARS are now looking to re characterise some
of these debt instruments as shares if they have certain stipulated features.
the Budget review indicates that the REITS legislation will look to extend to
unlisted REITS provided they are subject to similar regulation as listed REITS.
It does not indicate how this regulation is going to be introduced (currently
the JSE Limited is the regulator of listed REITS). The Treasury would want it
to be extended to wholly owned entities of private and Government pension
funds, as well as the long term insurers. It appears that they may be
considering the legislation to deal with property syndication, because it
indicates that REIT tax relief would be extended to cover other real estate
entities subject to such regulation. Moreover it indicates that the property
syndication legislation needs to protect investors from the Ponzi schemes which
we have seen over the last couple of years.
Morphet, Director, Tax, Cliffe Dekker Hofmeyr
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.