Durban CBD – Urban Development Zone (UDZ) Tax Incentives and Investment Opportunities

THE URBAN DEVELOPMENT ZONE ALLOWANCE

In line with many countries, South Africa has a number of urban areas that are suffering from urban decay, and in order to address this, governments internationally have increasingly utilised tax measures to support efforts aimed at regenerating these urban areas.

In 2003, The Minister of Finance, introduced a tax incentive for investment in 16 designated inner cities in South Africa. The core objective is to promote urban renewal and development by the private sector and encourages investment in areas with high population carrying capacity, central business districts or inner city environments with developed urban transport infrastructure.

This incentive has been introduced in the form of an accelerated depreciation allowance and has been effected by the insertion of Section 13quat into the Act. When claimed, the tax incentive reduces the taxable income of a taxpayer.

The incentive is not limited to the taxable income of the taxpayer and can create an assessed loss.

In all of the developments in which we are involved, the developer does not apply for, nor take the UDZ benefit, and the benefit is therefore passed on to the purchaser of the units.

Any person, company, closed corporation, trust etc will be eligible for the UDZ allowance providing that:

  • They are registered tax payers
  • The purchased property is used for trade or rental and not for their residential occupation

The submission to SARS for the UDZ benefit occurs with the annual submission of the owners tax returns and must include the following documentation:

  • A location certificate issued by the municipality to the developer and supplied to the purchaser by the developer
  • A certificate of occupancy in respect of the building supplied to the developer by the municipality and supplied to the purchaser by the developer
  • UDZ3 Form, downloaded from the SARS website www.sars.gov.za and completed by the purchaser and then by the developer.
  • UDZ2 Form, downloaded from the SARS website www.sars.gov.za and completed by the purchaser

When the purchaser sells the property in respect of which the UDZ allowance was claimed, he or she will from the year of assessment following the year of assessment during which the property was sold, no longer qualify for a UDZ allowance in respect of that property. Capital Gain will still apply on disposal of the unit.

It is important to note that the UDZ benefit is not transferable and only applies to the person or entity purchasing directly from the developer.

The benefit to investors is:

30% of the value of the property is allowed as a UDZ tax rebate over a period of 5 years. Therefore 6% of the purchase price can be claimed per annum over a 5 year period.

A practical example:

  • Bachelor unit costing ................... R290,000
  • 30% of the purchase price ........... R 87,000
  • Annual incentive rebate ............... R 17,400 per annum each year for 5 years in the hands of the original purchaser

For further information on UDZ investments:

Contact: Bradley Hancock
Tel: + 27 (72) 019 6192
Email: [email protected]

Courtesy: Stephanie Miller from Urbanize

Disclaimer: The information in this article is extracted from information supplied by SARS and is supplied as a guideline to investors. Further and more extensive information can be obtained from the SARS website.

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