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Taxation - Allowances

Taxation - Allowances. Urban Development Zone (UDZ) Allowance 11% of unit cost in the first year, and 4.4% pa for the following 10 years. Total 55% of capital value over 10 years. Tax Deductable Interest Interest payable on all funds borrowed to finance the investment is tax deductable

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Taxation - Allowances

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  1. Taxation - Allowances • Urban Development Zone (UDZ) Allowance • 11% of unit cost in the first year, and • 4.4% pa for the following 10 years. • Total 55% of capital value over 10 years. • Tax Deductable Interest • Interest payable on all funds borrowed to finance the investment is tax deductable • Assessed Tax Losses • Tax Losses may be set off against any other taxable income or may be carried forward to following tax periods * All assumptions and figures in models are based on one scenario, individuals or companies should seek independent tax advice based on their circumstances.

  2. Investment Assumptions • Apartment Unit 1 R9,950,000 • Structure investment Zero rated for VAT/Transfer Duty. • Tax allowance to purchaser of 55% of capital value over 10 years. • R5,472,500 (20% year one, 8.0% for next 10 years) • Interest on any bond finance also tax deductable. • Tax credit can be rolled forward and offset against ANY SA earned income. * All assumptions and figures in models are based on one scenario, individuals or companies should seek independent tax advice based on their circumstances. Tax rates are assumed.

  3. Tax Allowances UDZ • Year 1R1,094,500 • Year 2 – 11 R437,800 per year • Total Tax Allowance - R5,472,500 • Can be offset or structured against SA income. • Example (for illustrative purposes, please seek tax advice) • If you or your company earns R3m of declared taxable income per anum, R1,094,500 is deducted from this amount prior to your tax computation at “x” percent. • Assuming a rate of “x” being 28%* tax rate. • R3m would have a R840,000 tax bill. • When you take your credit R3m – R1.094m = R1.9m x 28%* • YOUR TAX BILL IS REDUCED FROM R1m TO= R533,540 • Saving R840,000m – R533,540 = R306,460 in year 1 • Total saving over 11 years assuming 28% tax rate = R1,532,300 * tax rate assumed for illustrative purposes. 8

  4. Benefits & Structure • You should seek tax advice about the optimal structure based on individual circumstances. • All interest payments paid on debt secured against the property are tax deductable. • If you rent the property your rental income can be offset by the tax allowance. • SARS recoup the tax benefit on resale.

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