I would like to know whether there is any allowance that an owner of a commercial building may claim. S13quin does not cater for an allowance if the building is not new and unused. This is quite unfair actually. Our client purchased a previously used comm
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The general rule, see proviso (ii) to section 11(e), is that “in no case shall any allowance be made for the depreciation of buildings or other structures or works of a permanent nature”. A policy decision was made, in 2007, and it was agreed that “no reason exists for the tax system to wholly exclude commercial buildings from potential write-offs for depreciation. The wholesale denial of depreciation for certain business buildings and structures raises the carrying cost of doing business without any meaningful policy rationale.”
The Explanatory Memorandum explained the intention as follows:
“Only new and unused buildings (and improvements) will be depreciable under this provision. Buildings that have been used by the taxpayer prior to the effective date cannot be depreciated. Buildings purchased by the taxpayer from a seller who used the building prior to the sale also cannot be depreciated.”
This applies to section 13quin buildings (commercial buildings) and there are few exceptions to this principle - if such building has been acquired by the taxpayer by purchase from any other person who was entitled to an allowance in respect thereof … or this paragraph or the corresponding provisions of any previous Income Tax Act, and such building was wholly or mainly used during the year of assessment by the taxpayer for the purpose of carrying on therein in the course of his trade (other than mining or farming) a process of manufacture, research and development or any other process which is of a similar nature …
We don’t have more information and can therefore not say why this limitation was brought in. We agree that, compared to manufacturing buildings, this may be unfair, but that is the law. To get the law to be changed, taxpayers will have to lobby National Treasury and SARS.
Section 13quat(5)(b) gave accelerated write off periods, but it has a sunset clause – buildings which is brought into use by the taxpayer after 31 March 2020.