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Can property rates and taxes be claimed as a deduction when you sell land?

19 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Can rates and taxes (assessment rates) be claimed as an expense against the profit made on the sale of a vacant piece of land?

A: We don’t have enough information to be able to provide the guidance required.  In essence we need to know if the land was held as trading stock.  Our guidance will therefore deal with both scenarios. 

The land was held as trading stock:

Section 22(3)(a) defines the cost price at any date of any trading stock.  It allows for "further costs incurred by him up to and including the said date in getting such trading stock into its then existing condition and location” to be added to the cost of acquisition. 

In terms of section 22(3)(b) the "further costs” which must be included in the cost price of any trading stock is such costs as in terms of any generally accepted accounting practice approved by the Commissioner should be included in the valuation of such trading stock.  We submit that the municipal rates and taxes may be added to the cost of the vacant land if it meets this requirement.

The land was held as a capital asset:

Paragraph 20 of the Eighth Schedule allows for the following expenditure (actually incurred which is directly related to the cost of ownership of that asset, which is used wholly and exclusively for business purposes) to be added to the cost of acquisition:

i) the cost of maintaining, repairing, protecting or insuring that asset;

ii) where the asset is immovable property, rates or taxes on that property.  

Note that the wording of paragraph 20(1)(g) changed in respect of disposals made on or after 1 January 2014.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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