TAX IMMPLICATIONS FOR BUYING COMMERCIAL PROPERTY
implications for buying commercial property
Gerhard Zeelie, head of commercial property finance at First National Bank (FNB) points out that the small to medium sized business owner is often unaware of the tax implications relating to the acquisition of commercial or industrial properties.
According to Zeelie, tax issues could have a significant impact on the perceived benefits and risks associated with the acquisition of property.
Although the tax implications can be quite complex there are general principles that can assist business owners in making property decisions, says Zeelie.
These include VAT and Transfer Duty, Income Tax and Capital Gains Tax, he explains.
and transfer duty
The amount claimed can in some instances only be a portion of the amount paid, depending on the nature of the business operated from the property.
According to Zeelie, if the owner of a property is registered for VAT and eventually sells the property, VAT will need to be levied on the sale of the property. If the owner is not registered for VAT then Transfer Duty will become payable on the transaction, he explains.
In the case of a VAT vendor, adds Zeelie, VAT will also need to be levied on the rental received in respect of a property.
However, he adds, tax deductions will be allowed on all costs relating to the financing of the property, including structuring fees and interest.
Rental income from these properties is taxable, but related expenses can also be claimed against this income, he says.
If the owner is a natural person then only 25% of the gain will be taxable in all other cases 50% of the gain will be taxable, says Zeelie.
While capital gains tax is widely misunderstood in the market, it is in effect quite simple, adds Zeelie,
The amount by which the property appreciates over its initial purchase price is the capital gain, whilst the taxable capital gain is derived after applying the 50% or 25% factor as explained above, Zeelie clarifies.
Zeelie advises that it is paramount that a potential buyer of commercial and industrial property seeks the advice of a knowledgeable person to guide them through the tax and other financial implications pertaining to the acquisition of the property.
© Christoph von Kalckreuth, Kapstadt, Südafrika 2005