Transcript Slide 1

Welcome to the
UDZ
TAX INCENTIVE
CONFERENCE
Day 3
20 Aug 05
UDZ Tax Incentive – Presentation at the Joburg UDZ
Conference & Exposition: August 20, 2005
By: Lebo Ramoreboli, Project Consultant –
Economic Development, Tourism & Marketing,
City of Johannesburg
Finance & Economic Development
Joburg UDZ demarcation
• Approved area commonly known as the Inner
City
Area excluded
Inner City Locations within UDZ
• The core CBD and high density residential
areas of the inner city.
• Braamfontein, Newtown, Hillbrow, Berea,
Yeoville, Bellevue, Troyeville, Bertrams, Ellis
Park, Fordsburg, Pageview, Benrose and a
number of other areas graphically depicted
in the Map
Eligibility
• Property owners of commercial, industrial and
residential buildings located in Inner City who
either:
– Substantially refurbish their premises or
– Demolish their buildings and construct new
ones on the premises
• Property owners living on the premises who
refurbish or construct granny flats or similar
facilities for income generation
Computation of
Deductible Amounts
• Annual tax deductions or accelerated
depreciation amounts are computed as
follows:
– For refurbishment of existing buildings, 5year straight line depreciation or 20% of
investment annually
– For new buildings, 20% of investment in yr
1, and 5% in 16 years subsequent (= 17
years amortization)
Computations
• Deduction can be made on all taxable income
including income from sources other than
buildings in UDZ, e.g. Salaries from other
employment, extraordinary income
• Applicable in cases where improvement or
new construction commenced on or after
proclamation date
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Costs covered under
UDZ tax incentive
Construction costs
Demolition of existing buildings
Permanent fixtures adjoining the site
Water, power, sewage,drainage, waste
disposal
Access or parking
Security (fence, cameras, surveillance
equipment, etc.)
Sidewalks
Landscaping as part of development
Painting
Benefits to Private
Investors
• Highly innovative accelerated depreciation
deductible from all taxable income (including
personal income tax).
• Corporate and small investors can now
reclaim their income generating-buildings
which might have declined or degenerated,
renovate them and access the Incentive
• New prospective investors can also buy
buildings for income-generating purposes, to
renovate or replace them with new structures
and still derive the tax benefit
Example: Comparative
scenarios: With and without
UDZ
tax
Benefit:
Assumptions
• Refurbishment investment = R2.0mio
• 4 blocks of flats comprised of 10 units
each, I.e.,40 units. Rental at R2,000 per
month for 12 months
• Income before depreciation & tax = R
R476,000.00
• Depreciation of R2.0 million refurbishment
investment at 20% per annum for 5 years
• 30% Company Tax
Results
• Income in both Scenarios = R 960,000.00
• 20% annual depreciation = R 400,000.00
• Taxable income without udz incentive = R
476,000.00
• Taxable Income with udz incentive = R
76,000.00
• Tax expense without udz incentive = R
142,800.00 and R 22,800.00 with udz incentive
• Net tax saving with udz incentive =R 120,000.00
Computation of Gain derived from participation in
UDZ Tax Incentive
Example One
No
Item
Without
UDZ Tax
Incent6ive
With UDZ
Tax
Incentive
I.
Income
(Rental Revenue
R 960,000.00
R 960,000.00 Assume 4 blocks of flats comprised of 10 units each, I.e
40 units. Rental at R2,000 per month for
12 months
II.
Less: Operating
Expenses
R 384,000.00
R 384,000.00 e.g staff salaries, admin expenses, salaries, computed
at 40% of rental income
III
Income Before
Interest, Depreciation
& Tax
R 576,000.00
R 576,000.00 III = I - II
IV.
Less: Financing
Charges
R 100,000.00
R 100,000.00 Assume 5% interest on R2.0 million bank loan
V.
Income Before
Depreciation &
Tax
R 476,000.00
R 476,000.00 V = III - IV
VI.
Less: UDZ
Depreciation
VII
Taxable Income
R 476,000.00
R 76,000.00 VII = V - VI
VIII
Company Tax
R 142,800.00
R 22,800.00 Assume 30% Company Tax
IX
Net Income
R 333,200.00
R 53,200.00 IX = VII - VIII
X
Net Tax Saving/Profit
R 0.00
0
Notes
R 400,000.00 Assume Depreciation of R2.0 million refurbishment
Investment at 20% per annum for 5 years
R 120,000.00
Computation of Gain derived from participation in
UDZ Tax Incentive
Example Two : Including Income from other sources
No
Item
Without
UDZ Tax
Incent6ive
With UDZ
Tax
Incentive
I.
Income
(Rental Revenue
R 960,000.00
R 960,000.00
II.
Income from other
Sources
R 300,000.00
R 300,000.00
III.
Toal Gross Income
R 1,260,000.00
R 1,260,000.00
IV.
Less: Operating
Expenses
R 384,000.00
R 384,000.00
V.
Income Before
Interest, Depreciation
& Tax
R 876,000.00
R 876,000.00
VI.
Less: Financing
Charges
R 100,000.00
R 100,000.00
VII
Income Before
Depreciation &
Tax
R 776,000.00
R 776,000.00
VIII.
Less: UDZ
Depreciation
R 0.00
R 400,000.00
IX.
Taxable Income
R 776,000.00
R 376,000.00
X.
Company Tax
R 232,800.00
R 112,800.00
XI.
Net Income
R 543,200.00
R 263,200.00
XII
Net Tax Saving/Profit
0
R 280,000.00
General operational
procedures
• Investors have to complete and submit
registration form provided by council ASAP
• When construction is complete, fill in application
for location certificate
• Submit location certificate and prior obtained
occupancy certificate with SARS, tax returns for
statutory tax assessment
• SARS is developing an appropriate certificate for
UDZ tax incentive beneficiaries which will be
available soon
Urban Development Zone
Tax Incentive
Location Certificate
Issued in terms of Section 13 quat of the Income Tax Act, No 58 of 1962
Sections to be completed by applicant
Sections to be completed by official
UDZ Location certificate no. CoJ/UDZ/LC/00101
Property and owner’s information
(to be filled in by applicant)
Name of city
Johannesburg
Name of UDZ
Newtown
Erf number
607
Township name
Newtown
Street address
16 C Bree Street
Newtown
Johannesburg
Owner’s name
Zebree Investments
Building information
(to be filled in by applicant)
Approved plan no
N/A
Plan approval date
N/A
Commencement date
November 22, 2004
Completion date
February 28, 2005
Occupancy Certificate
number
N/A
Occupancy Certificate
date of issue
N/A
Please attach a copy of the occupancy certificate issued by the Municipality
New building or additions
to existing building
Refurbishment of existing
building
Is this a phased project? If yes, describe which
building/phase is being applied for
No
Total cost of work associated with this
Location/Occupancy Certificate
X
No
I certify that the above information is correct and accurate
Signature of the applicant
Contact details of applicant
Name : Drohan van den Berg
…………………………………………..
Certification
Date
November 12,
2004
Tel no: 011 833 2860
Fax no :011 833 2860
Cel no: 082 454 7711
th
Address:28 4 Street Menlo Park Pretoria……………..
(To be filled in by Municipality)
I ………………………………………. hereby certify that the above property falls within the Urban
Development Zone as promulgated by the Minister in the Gazette No ……… dated 14 October 2004.
Existing supportive
investment climate
• Recent and on-going public investments e.g.
Newtown, Constitution Hill, Main street precinct,
Standard Bank parking complex, ABSA, etc.
• Establishment of Business Improvement
Districts i.r.o supplementary urban management
• Collaboration among council agencies, private
sector
• Anticipated initiatives e.g. 2010 Soccer World
Cup, Gautrain & Park station development
For Further Information
www.joburg.org.za/udz
Lebo Ramoreboli
Project Consultant
(Area Regeneration)
Finance & Economic Development
City of Johannesburg
Cell: +27 (0)82 372 3174
Tel: +27 (0)11 358 3437
Fax: +27 (0)11 358 3444
E-mail: [email protected]