During his 2008 Budget speech, the Minister of Finance, Trevor
Manuel, announced that the Urban Renewal Tax Incentive that was
introduced in 2004, will be extended for another five years until
March 2014. This news was celebrated by investors hoping to benefit
out of South Africa hosting the 2010 FIFA World Cup.
The tax incentive takes the form of an accelerated depreciation
allowance in 16 designated Urban Development Zones (UDZ). The
intention of the incentive is to address inner city decay caused by
urban migration, and to ensure that existing infrastructure in
these areas is maintained and utilised to its full capacity.
Central business districts and inner cities typically have
well-developed transport infrastructure and population carrying
capacity. The South African government's objective is therefore
to promote private sector investment in residential and commercial
property; both through construction of new buildings and
improvement of existing ones. The buildings must be used solely for
the purpose of trade, including rental of residential property. The
allowance is structured as follows:
Construction of new buildings or extension of existing
20 per cent allowance in the first year and 8 per cent per year
for the next ten years.
Refurbishment of existing buildings:
20 per cent straight-line allowance over five years.
There are certain deemed-cost provisions to which the allowance
must be applied.
The City of Johannesburg alone has reported R5bn (approx USD
$550m) of investments in its UDZ since the introduction of the
incentive, with annual projections for the remainder of the term at
even higher levels.
In order to promote this incentive among smaller investors, the
incentive is not only available to developers, but also first-time
buyers of the developed or improved building, including sectional
title ownership. The incentive is also not ring-fenced to
investment income relating to the building and excess losses can be
carried forward indefinitely.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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