Section 13sex of the South African Income Tax Act is one of the more useful tax incentives for residential property investors, yet it is often misunderstood. In simple terms, it allows a taxpayer to deduct a portion of the cost of certain new and unused residential rental units from taxable income over time. SARS describes the allowance as 5% a year on a straight-line basis for qualifying units, with an additional 5% for qualifying low-cost residential units.
For an investor in a new development, that can materially improve after-tax cash flow. But the allowance has strict requirements, and getting one or two of them wrong can sink the claim.
1. What section 13sex is trying to do
The provision is aimed at encouraging the supply of rental housing. It applies to new and unused residential units, and also to certain new and unused improvements to residential units, provided the statutory requirements are met.
2. The core requirements
A taxpayer can generally claim section 13sex only if all of the following are present:
- the unit is new and unused;
- the taxpayer owns it;
- it is situated in South Africa;
- it is used solely for purposes of a trade carried on by the taxpayer; and
- the taxpayer owns at least 5 residential units in South Africa that are used for trade (could be residential letting business).
That 5-unit threshold is important. SARS's interpretation note explains that if a taxpayer owns five qualifying units and later falls below five, the remaining units stop qualifying from the following year of assessment.
3. What “used solely for trade” means
The unit must be used only for the taxpayer's trade. If the owner lives in the property, even partly, the allowance is not available for that unit. SARS states that no apportionment applies where a residential unit is partly used for trade and partly for non-trade purposes, such as owner occupation. In practice, this means section 13sex is designed for genuine rental stock, not for a primary residence that is occasionally let out.
4. The deduction rate
For a standard qualifying residential unit, the deduction is 5% of the qualifying cost per year. That effectively writes the qualifying cost off over 20 years. SARS's current general tax guide summarises section 13sex on that basis.
5. What amount qualifies
The deduction is based on the taxpayer's cost of a building on a residential property or qualifying improvement. As a general rule, the building element is what matters, not the land.
In the case of sectional title unit, the cost for section 13sex purposes is deemed to be 55% of the acquisition price for a unit being acquired.
6. Example 1: sectional title apartment
Assume Ms A buys a new sectional title apartment from a developer for R2,500,000. She already owns four other rental apartments, so this becomes her fifth qualifying residential unit. The apartment is let to tenants only and is never used personally.
Because the apartment represents part of a building, section 13sex deems the cost of acquiring that unit to be 55% of the acquisition price.
Example: Qualifying cost
R2,500,000 × 55% = R1,375,000
Her annual section 13sex deduction is: R1,375,000 × 5% = R68,750 per year
If Ms A is taxed at a marginal rate of 45%, the annual tax saving is approximately: R68,750 × 45% = R30,937.50 per year
That is a meaningful cash-flow benefit and is the correct statutory approach for a qualifying sectional title unit that represents part of a building.
7. What happens on sale: recoupment and CGT
This is another area where people get caught.
Section 13sex deductions are generally subject to recoupment under section 8(4)(a) when the building is disposed of for more than its tax value. If you claimed deductions over the years and later sell at a value that exceeds the written-down tax value, part of the prior tax benefit may be pulled back into taxable income as a recoupment. That sits alongside the capital gains tax analysis.
8. Practical checklist before claiming
Before claiming section 13sex, confirm the following:
- the unit is genuinely new and unused;
- it is held solely for rental trade;
- you will meet the five-unit requirement;
- if the unit represents part of a building, such as a sectional title apartment, you have applied the deemed-cost rule correctly;
- the ownership structure is sensible for your tax profile; and
- you have modelled recoupment and CGT on exit.
9. Bottom line
Section 13sex can be a powerful tax tool for residential investors, especially where the acquisition is part of a broader rental portfolio and the unit is acquired new from a developer.
But the incentive is technical. The five-unit rule, sole-trade-use requirement, cost allocation, and exit tax consequences all matter. Used properly, section 13sex improves after-tax returns.
Important note
This article is a general overview, not legal or tax advice. Before claiming section 13sex in a specific transaction, the wording of the current Act, the latest SARS guidance, and the taxpayer's facts should be checked carefully. Please consult your tax advisor for specialist assistance.
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