Article source: Tax-News
The South African Revenue Service (SARS) has published a tax guide that provides a general explanation of the application and interpretation of the provisions within the Government’s urban development zone (UDZ) tax incentive.
In 2003, the South African Minister of Finance announced the UDZ incentive in the form of an accelerated depreciation allowance under the income tax code to promote investment in 16 designated inner cities, 15 of which now have demarcated UDZs within their boundaries.
The core objectives of the UDZ incentive are to address dereliction and dilapidation in South Africa’s largest cities and to promote urban renewal and development by promoting investment by the private sector in the construction or improvement of commercial and residential buildings, including low-cost housing units, situated within demarcated UDZs. The incentive also intends to encourage investment in urban transport infrastructure for trains, buses or taxis.
Municipalities are be given the opportunity to apply for extensions to already existing designated zones and to apply for an additional demarcated UDZ in an existing municipal zone. Only areas which have a specific and necessary need for an extra zone will be granted UDZ status, and will be subject to Ministerial approval.
The 100 percent allowance, when claimed, reduces the taxable income of a taxpayer, and can also be used even if it creates an assessed loss, which can be carried forward. The deduction was originally only available until March 31, 2014, but it has now been extended for a further six years until March 31, 2020.
Apart from the general application of the UDZ incentive, the guide also explains that, in the event of a purchase of a building or part of a building from a developer, a deduction will be allowed for 55 percent percent of the purchase price of that building, in the case of a new building erected, extended or added to by the developer; or 30 percent of the purchase price of that building, in the case of a building improved by the developer.
It also provides an overview of the income tax consequences associated with the disposal of a building on which the tax incentive was previously allowed, or the ceasing of a taxpayer to use such a building solely for the purposes of that person’s trade.