Shafeeka Hartley
New tax incentive tip for sectional title, share block scheme owners.
With sectional title schemes sprouting on just about every corner throughout our cities seemingly overnight, it is not surprising that a residential unit (apartment) in these schemes has become a popular investment.
As owners of apartments, we often chair or form part of the body corporate which regulates use of the sectional title scheme by the owners and occupiers and which collects the relevant levies.
Levies are applied towards the upkeep of the sectional title scheme for the benefit of all owners and occupiers. It often happens that a surplus arises once the aggregate levies received have been applied to meet expenses. It is therefore imperative that we understand how these levies are treated for tax purposes and that we invest any surplus monies in the most tax efficient manner.
Levies collected by bodies corporate and share block companies have long enjoyed complete exemption from income tax. For as long as these levies have been exempt though, the income generated from the investment of any surplus levies has been taxable, until now.
With effect from 1 January 2009, up to R50 000 of the aggregate of all additional income received by bodies corporate and share block companies is also exempt from income tax. This means that bodies corporate may invest any surplus levies collected, thereby generating tax free income. If the return on investment is less than R50 000 for their years of assessment ending on or after 1 January 2009, the bodies corporate will not be liable for income tax. Additional income above the R50 000 threshold attracts tax at the corporate tax rate.
Following the release of the taxation law amendments this year, the above exemptions remain in place. The only change serves to clarify that the R50 000 exemption applies even where the aggregate of all additional income received by the body corporate exceeds that amount.
A great business strategy for bodies corporate and share block companies is therefore to invest surplus levies when maintenance requirements are low. The income generated will enjoy favourable tax treatment and will go some way towards reducing the need to collect special levies when the building requires a bit more TLC!
* Shafeeka Hartley is an Associate at Deneys Reitz Inc.
www.deneysreitz.co.za.
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