4.4 Building Allowances (18) Flashcards
Building allowances – s 13, includes:
● Industrial building – initial allowance – s 13(7)
● Industrial building – annual allowance – s 13(1)
● Residential buildings – s 13ter
● Urban development zone allowance – s 13quat
● Commercial buildings – s 13quin
● Residential units – s 13sex
● Low-cost residential units sold on loan account – s 13sept
Industrial building – initial allowance – s 13(7)
No longer applicable, however still relevant if a building on which this initial allowance was granted is sold for a price that exceeds 82.5% of its original cost as the allowance recovered will need to be recouped.
Industrial building – annual allowance – s 13(1)
An annual allowances is based on the cost of a building used wholly or mainly in a process of manufacture or let to a tenant for this purpose and granted at 5%
A percentage of cost of any improvements can also be deducted.
Based on cost after deducting leasehold improvements, recoupments and initial allowance.
Industrial building – annual allowance – s 13(1) may also apply to
A person purchasing a building provided the seller was entitled to allowance.
If acquisition is after 1 Apr 2000, the allowance is the lesser of actual allowance claimed and 5%
For years after 1 Jan 2002, purchaser may claim 5% on cost of building even if seller wasn’t entitled provided it’s new, purchased by taxpayer and for purposes of manufacture.
Not apportioned, based on cost to purchaser and cost of any land must be excluded.
Residential buildings – s 13ter
Introduced in order to encourage the construction of residential housing units.
Granted in year at least 5 units are let.
Allowance consists of:
● Initial allowance – 10% of cost; and
● Annual allowance 2% of cost for period of 45 years
NOT apportioned
A residential unit under s 13ter is described as:
Self-contained residential accommodation consisting of more than one room which is erected in order to:
● Let to a tenant for purpose of deriving a profit
● Occupied by full-time employee of taxpayer
Residential building allowance recoupment
Where a unit is no longer utilised as required a recoupment must be added to gross income in the year this occurs.
Recoupment calculation:
Full initial allowance LESS 1/10 of initial allowance for each completed year that unit was let or occupied
The annual allowance will not be granted for that year or any succeeding year for that unit.
Urban development zone allowance – s 13quat
In order to encourage development in certain areas, the following allowances are granted to owners or lessors, who engage in property development in specified urban and inner city zones: (not apportioned)
● Refurbishment of building – 20% straight line depreciation over 5 years
● New building / extension – 20% write off of costs in first year and 8% write off of costs over next ten years.
Where purchased from developer
● Refurbishment of building – 30% of purchase price
● New building / extension – 55% of purchase price
The following provisions apply to low-cost residential units
New buildings or extensions to buildings:
● Year 1 – 25% of cost
● Year 2 to 6 – 13% of cost per annum
● Year 7 – 10% of cost
Improvements to existing buildings:
● 25% of cost over 4 years
Requirements in order to claim s 13quat
Various certificates and schedules will need to be provided.
In addition following conditions will apply:
● Buildings erected and improvements by taxpayer
- Building must be owned by taxpayer
- Used solely for purpose of trade
- Within Urban Development Zone
- Must be the whole building or floor area over 1000 sqm
● Buildings purchased by taxpayer - above and if from a developer the below
- Developer must not claim s 13quat
- If developer improved existing building , cost to them must be equal to at least 20% of purchase price to taxpayer
If new building was sold, the recoupment would be calculated as follows:
Sale price (limited to cost price) - Tax of building
Tax of building = Cost price - 13quat deductions
Commercial buildings – s 13quin
Provides for a 5% annual allowance (NOT apportioned) on the lesser of cost or market value of any new or unused building (or improvements) owned by taxpayer, provided for purpose of providing income (excluding residential accommodation)
● Where part of building is acquired – purchase price x 55%
● Where improvement is acquired – purchase price x 30%
Residential units – s 13sex
Provides for an annual allowance on any new or unused residential units (or improvements) purchased and owned by taxpayer and used solely for purpose of trade. (let / accommodation for employees).
At least five units and situated in SA (no apportionment)
Residential units – s 13sex – allowance claimable is
● Normal residential unit – 5% of cost per annum over 20 years
● Low-cost residential unit – 10% of cost per annum over 10 years
Where only part of building of building is purchased
● A unit is acquired – purchase price x 55%
● Improvement is acquired – purchase price x 30%
Residential unit under s 13sex is defined as
Building or self-contained apartment mainly used for residential accommodation (excludes hotel)
