The Cape Town UDZ tax incentive is a SARS administered tax incentive encouraging residential and commercial development in certain specified areas in Cape Town, in which Paradigm will be located. The tax incentive offers property owners a tax deduction against taxable income over eleven years and could act as a deferment of tax payable until the apartment is sold.

How does it work?

The purchaser of a redeveloped residential apartment located in the UDZ will be able to claim an income tax allowance. 55% of the purchase price is deductible. The tax allowance is claimed over eleven years at a rate of 20% in the first year and 8% in the succeeding ten years. The tax allowance is recouped on the sale of the apartment for an amount greater than or equal to cost, which can be deferred for as long as the owner holds the property.

Example:

On a residential apartment with a cost of R2 million, the purchaser is entitled to claim a tax allowance of 55% of the cost of the unit, which equals R1 100 000 over eleven years. The R1 100 000 tax allowance is claimed over eleven years at a rate of 20% in the first year and 8% in the succeeding ten years which results in an annual income tax deduction of R220 000 in the first year and R88 000 in the subsequent ten years.

Disclaimer

Please note that the UDZ tax incentive contains a number of requirements which must be met in order to claim the tax allowance. The examples detailed above are of a generic nature and may not apply in certain instances. The developer and its affiliates do not provide tax advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax advice. You should consult your own tax advisors before engaging in any transaction.

UDZ is set for review in March of 2025 by the SA Government.

Investors have access to powerful tax incentives, including the popular Section 13sex of the Income Tax Act No 58 of 1962. This scheme enables any taxpayer who owns five or more new, residential rental units (do not all have to be from the same development), to claim up to 55% of the purchase price as a tax deduction.

Example:

• Purchase five units at a total purchase price of R19 868 075
• Minus the launch discount = R500 000 (R100 000 per unit, if purchased on launch)
• Final purchase price = R19 368 075
• Deemed purchase price = R10 652 441 (55% of final purchase price)
• 5% of the deemed price may be used as a tax deduction per year

This works out to a tax deduction (tax write-off) of R532 622 per year for 20 years.

Total tax write-off = R10 652 441 (over 20 years)

1. The taxpayer must own at least 5 residential units. The deal kicks in once the buyer takes ownership of their 5th new unit. A residential apartment refers to a building or self-contained apartment, mainly used for residential accommodation with the exclusion of structures used for business purposes, for example, hotels.
2. All units must be situated in South Africa.
3. Residential units must have been purchased new and unused. (For example, buyers of flats that had previously been occupied would not qualify for this incentive.)
4. The units must be used solely for the purpose of trade (i.e. residential letting). This prevents housing claims for personal use.

Please consult your tax advisor for further clarification and information.