An allowance is available in respect of new commercial buildings or improvements to existing buildings. The allowance is equal to 5% of the cost to the taxpayer of any new and unused building owned by the taxpayer if that building or improvement is wholly or mainly used by the taxpayer during the year of assessment for purposes of producing income in the course of the taxpayer’s trade.

The owner of the building qualifies for this allowance and not the occupant. If for example, the occupant incurs the expenditure in respect of any improvements, the s 13quin allowance is not available for the owner of such building (improvements by occupants to buildings may also result in other taxes, for example, CGT or normal income tax in the hands of the owner of the building). This potential problem can simply be remedied if the occupant pay additional rental income (equal to the improvements) and the owner himself incurs the expenditure in respect of the improvements.

This allowance is not available for expenses incurred in respect of residential accommodation. It is submitted that a guest house does not constitute “residential accommodation” – owners of guest houses should, therefore, keep accurate records of qualifying expenses and claim the appropriate tax allowance.

The allowance only applies where the building or improvement was contracted for and construction commenced on or after 1 April 2007. Please remember that the cost of any building or improvement is the lessor of the actual cost to you or the arm’s length cost on the date on which the transaction for the acquisition, erection or improvement of the building was in fact concluded. Once you sell the building you lose the right to claim the allowance.

Example: Jonck Tax Consultants CC purchases an office under a sectional title in an office park for R2.5 million. The office park is brand new and does not provide for residential accommodation. Can the commercial building allowance be claimed? Yes, an allowance can be claimed under Section 13 Quin as the CC owns the building, which is new and unused and not used for residential accommodation. What happens if the CC sells the building within 20 years? The annual allowance of R125,000 is lost if the building is sold and there is a recoupment of allowances previously claimed. The purchaser that acquires the building from Jonck Tax Consultants CC cannot claim the allowance because the building is no longer new and unused.