Is the additional 5% section 13sex allowance only applicable to improvements?
15 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: Section 13 sex
provides for an allowance equal to 5% of the cost of new or unused residential
units or improvements. Then the further 5% is allowed for units that qualify
under the "low-cost residential unit” definition.
What we are unsure about is whether the additional 5% for
low-cost housing would also apply to only improvements. So i.e. the apartment
itself qualifies according to "low-cost residential unit” definition, but is
purchased second hand. Improvements are then done by the taxpayer for which he
would want to claim 10% of the cost of the improvements.
Would this be allowed?
Also, in applying the definition of "low-cost residential
unit”, would one include the cost of improvements made (for which you are
claiming the 5%)?
And would the 10% increase rule (for purposes of determining
the rental factor) be calculated from the date that the taxpayer purchased the
property, even though it was not new and unused at time of purchase?
13sex(1) specifically refers to "...the cost to the taxpayer of any new and
unused residential unit (or of any new and unused improvement to a residential
unit) owned by the taxpayer...” Section
13sex(2) then allows to be deducted from the income of the taxpayer an additional
allowance of five per cent of the cost of a low-cost residential unit of a
taxpayer for a year of assessment if deductions are allowable to that taxpayer
in respect of that unit in terms of subsection (1) during that year of
From that it is clear that the allowance (both) is available
in respect of any new and unused improvement if the residential unit is a
low-cost residential unit. It is defined
(in section 1(1)) as follows:
‘low-cost residential unit’ means—
(a) an apartment qualifying as a residential unit in a
building located within the Republic, where—
(i) the cost of the apartment does not exceed R350 000; and
(ii) the owner of the apartment does not charge a monthly
rental in respect of that apartment that exceeds one per cent of the cost; or
(b) a building qualifying as a residential unit located
within the Republic, where—
(i) the cost of the building does not exceed R300 000; and
(ii) the owner of the building does not charge a monthly
rental in respect of that building that exceeds one per cent of the cost
contemplated in subparagraph (i) plus a proportionate share of the cost of the
land and the bulk infrastructure:
Provided that for the purposes of paragraphs (a) (ii) and
(b) (ii), the cost is deemed to be increased by 10 per cent in each year
succeeding the year in which the apartment or building is first brought into
We submit that the cost of the unit would in fact include
the cost of the improvement.
As can be seen from the proviso, the 10% increase applies
from the year the building (improvements in this instance) is first brought in
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