South African tax law contains a substantial incentive for commercial property investors that is routinely left unclaimed: section 13quin of the Income Tax Act, which allows a 5% per year deduction on the cost of new and unused commercial buildings — a full write-off over 20 years against rental income.

What qualifies

The allowance applies to new and unused buildings (or new and unused improvements to existing buildings) owned by the taxpayer and used wholly or mainly for trade — which includes letting commercial space such as offices, warehouses and retail. Second-hand buildings do not qualify for 13quin itself, but new improvements to them can. Where a taxpayer buys a qualifying building from a developer, the allowance is claimed on 55% of the purchase price (30% for an improvement), reflecting the land and profit components.

What it's worth

Take a new warehouse costing R20 million to construct. Section 13quin allows R1 million per year as a deduction against taxable rental income. For a company at the 27% rate, that is R270,000 of annual tax saved — roughly 1.35% of building cost per year added to after-tax yield. Over the 20-year life, the full R20 million is written off. On yield-driven industrial assets, the allowance can move after-tax returns by more than a full percentage point.

The recoupment catch

Allowances claimed reduce the building's tax base cost. On sale, previously claimed allowances are recouped and taxed as income to the extent the price exceeds the written-down value. The allowance is therefore partly a deferral — but a 20-year interest-free deferral is valuable, and careful structuring of the sale can manage recoupment.

Practical notes

Keep the paper trail: construction cost breakdowns, occupation dates, and developer purchase agreements. Residential landlords should look at section 13sex instead (new residential units, 5% per year, minimum five units). And the urban development zone (section 13quat) allowances still apply in designated inner-city zones, at accelerated rates. This article is general information, not tax advice — confirm your position with a tax practitioner before claiming.

Stone Capital's investment desk factors tax allowances into the net-yield modelling on new-build commercial opportunities. Browse investment stock →