Section 13sex: The Tax Incentive Most SA Property Investors Have Never Heard Of

If you own five or more new residential rental units, SARS will let you deduct 5% of the building cost from your taxable income every year for 20 years — effectively writing off the entire building cost over two decades. Most investors have no idea this exists.

What Is Section 13sex?

Section 13sex of the Income Tax Act (No. 58 of 1962) is a capital allowance that allows owners of residential rental properties to claim an annual deduction equal to 5% of the cost of erecting a new residential building — or the cost of improvements — provided specific conditions are met. The allowance runs for 20 years, meaning you can deduct 100% of qualifying building costs over the life of the incentive.

Who Qualifies?

To claim Section 13sex, you must meet all of the following: own at least five residential units; the units must be newly erected (not second-hand purchases); you must be in the business of letting (trading with profit intention); units must be residential dwellings; and buildings must have been erected after 21 October 2008.

What Costs Are Deductible?

The deduction is calculated on the cost of erecting the building — not the total purchase price. Qualifying costs include: architect and professional fees directly related to construction, materials, labour, approved improvements and building infrastructure. Land cost, purchase price of existing buildings, furniture, transfer duties and financing costs do not qualify.

How Much Tax Could You Save?

Consider an investor who builds a block of 10 apartments with a building cost (excluding land) of R8 million, on the top marginal tax rate of 45%. Annual deduction: R400,000. Annual tax saving: R180,000. Over 20 years: R3.6 million in total tax savings — on an investment that is simultaneously generating rental income.

Common Mistakes When Claiming

The most common errors include: including land cost in the deductible base; claiming on second-hand property purchases; skipping the claim in a loss year (it cannot be carried forward); failing to keep supporting documentation such as building contracts, invoices and approved plans; and claiming when a unit is vacant for extended periods or used personally.