Give property development sector clarity on tax positions and create employment, Deloitte urges Minister
Pretoria, 15 January 2013 - The 2013/2014 budget speech will present an ideal opportunity for SARS to provide the property development sector with clarity on several of their tax concerns and, in so doing, provide adequate incentives to help expand the nation’s infrastructure and create employment, says Deloitte.
Izél Du Plessis, Deloitte Tax Director and Regional Tax Leader for Pretoria, says that “although
taxpayers who own new and unused commercial buildings are permitted to deduct capital allowances on these buildings from their taxable income, there have recently been two occasions where confusion regarding this principle has arisen.”
“The first example of confusion occurring involved ownership of a building transferred within a group of companies. Section 45, one of the corporate rules of the Income Tax Act, provides for tax roll-over relief to be provided where assets are sold from one group company to another,” says Du Plessis.
“Section 45 states that the new owner will “step into the shoes” of the previous owner as if the building has always belonged to it. To qualify for the relief provided in terms of this section it is required that, if the building constitutes an allowance asset (a capital asset on which tax allowances are claimed), for the seller, it must also be acquired as an allowance asset by the purchaser.
“However, for purposes of section 13quin, a building must be new and unused for the owner to be allowed to claim tax allowances on the building. This obviously cannot be the case if a building was previously used and then sold,” says Du Plessis.
“This creates an anomaly. The purchaser must acquire the building as an allowance asset in order to qualify for relief in terms of section 45. Since the building is not new and unused from the buyers perspective, the purchaser cannot acquire the asset as an allowance asset, as it will not be entitled to claim tax allowances on the building.
“Arguably, the transfer of this building can thus not be effected in terms of section 45 of the Act, as the requirement that the asset must be acquired by the purchaser as an allowance asset will not be met. This is clearly against the spirit of section 45,” Du Plessis says.
“SARS, she adds, had confirmed on questioning that the intention of the legislator was never to refuse the purchaser the right to claim allowances on assets acquired in this manner.”
The second anomaly had impacted on taxpayers who had erected buildings on land leased in terms of a 99 year agreement.
“As the ownership of the building attaches to the land on which it is built, the buildings belong to the lessor of the land,” says Du Plessis.
“Therefore, section 13quin, or similar building allowances, cannot be claimed by the person erecting the building, as they do not ownthe building.
“The legislator sought to amend this by inserting section 12N in the Act, effective from 10 November 2010, stating that where land is leased from Government, the lessee will be deemed to be the owner of the land for purposes of deducting capital allowances.”
However, asks Du Plessis, what occurs if the 99 year lease is not held with Government?
“Currently the legislator does not provide any relief to taxpayers who erected the buildings, as the lease is not with Government. In addition, the land does not belong to the developer either. Therefore property developers cannot claim capital allowances on the buildings they construct. Obviously, this is cause for great concern in the property development sector.”
“Deloitte therefore looks forward to the upcoming budget speech in the hope that these issues will be addressed, and so assist the property development sector with the clarity they require,” says Du Plessis.