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The South African Revenue Service (SARS) has published a revised 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 regime.
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.
In 2003, the South African Minister of Finance announced the UDZ incentive would be in the form of an accelerated depreciation allowance on the cost of the erection, extension, addition, or improvement of any commercial or residential building, or a part of a building, in demarcated UDZs.
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 available only until March 31, 2014, but it has now been extended for a further six years until March 31, 2020.
The guide 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 of the purchase price in the case of a building erected, extended, or added to by the developer; or 30 percent of the purchase price of that building in the case of an existing 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.
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