Tax incentives still available for inner city renewal investments
19 June 2017
Developers and buyers who want to contribute to the rejuvenation of the Johannesburg inner city can still qualify for generous tax benefits after the Urban Development Zone (UDZ) tax incentive scheme was extended by six years.
The scheme, introduced by an act of Parliament in 2003 to promote urban renewal in 15 designated inner cities across the country – including Johannesburg’s – was initially scheduled to end in March 2014. But it has since been extended to 31 March 2020 by the Taxation Laws Amendment Act 22 of 2012.
This means that developers and buyers have another three years to take advantage of these opportunities.
More than R10-billion in investments have been poured into the Johannesburg inner city since the UDZ tax incentive was introduced 17 years ago. Covering an area of about 1 800 hectares, the Johannesburg UDZ encompasses the entire core of the inner city – from Fordsburg to Jeppestown, and from Belleview to the M2 in the south.
The area includes Newtown, Hillbrow, Braamfontein, Yeoville, Troyeville, Doornfontein, Ellis Park, Bertrams, Ferreirasdorp, Selby, Wolhuter, Vrededorp, Marshalltown, City & Suburban, Fairview and Benrose.
Briefing the City of Johannesburg’s Section 79 Oversight Committee on Economic Development during a tour of the zone on Wednesday June 14, UDZ-Anchored Inner City Revitalisation Deputy Director Lebo Ramoreboli said the UDZ tax incentive was aimed at revitalising inner city areas by attracting capital investments in commercial and residential property through a tax rebate.
“Any taxpaying property-owning individual or entity may claim the tax benefits of the UDZ incentive. The incentive takes the form of a tax allowance covering an accelerated depreciation of investment made in either the refurbishment of existing property or creation of new developments within the inner city, up until 2020,” she said.
The tour covered areas such as the Carlton Centre Film District, Anglo American Mining District, Mathomo Mall, Maboneng Precinct, First National Bank City and Newtown Precinct.
On the tour were committee chairperson Cllr Franco de Lange and councillors Schoolboy Gobata, Ingrid Reinten and Cynthia Khanyi.
Ramoreboli told the committee that the UDZ incentive could accelerate inclusive growth in the inner city. “One of the City of Johannesburg’s most ambitious goals is to bring people back into the central city to live, play and work through appropriate residential and business densification, affordable housing and mixed-use buildings.
“However, government planning and private sector investment are essential in creating conditions for this goal to be realised – the keyword being partnerships,” she said.
She said to qualify for the incentives, buyers and developers must bring the properties into commercial use before 31 March 2020.
Ramoreboli said the Specific Incentive Act provided for an allowance in respect of residential or commercial buildings owned by the taxpayer and used solely for the purpose of the taxpayer’s trade – renting out the building will qualify as the taxpayer’s trade – where such a building is erected, extended, improved or added to.
“The incentive is essentially an accelerated depreciation allowance that allows a taxpayer to deduct substantial portions of the cost of the building/development from his/her/its taxable income. The amount is not limited to taxable income and can, in fact, create an assessed loss.
“The amount of the deduction depends on whether the building is purchased, erected, extended, improved or added to; the purpose for which the building used; whether the taxpayer owns the whole or part of the building/development (if only part of the building is owned, a floor area of at least 1000m²); and whether it is in fact situated within the area demarcated as a UDZ,” Ramoreboli said.