Tax
If you own a building and use it for purposes of your trade, the Income Tax Act allows a capital deduction under section 17(1)(f).
Using for trade means that either you occupy the building for your business (i.e. your offices, warehouse etc). Alternatively it may also be where you are a property investor and the building is rented out.
It is important to note that you can only claim the allowances if you incurred the costs of erection. Therefore, where you are leasing the property, no building allowance is available as you would not normally incur the capital costs on putting up the building. There may be exceptions to this in the form of leasehold improvements effected on the leased property and we will explore this in future articles.
Twenty percent (20%) of the cost of erection may be claimed in the year during which the building is taken into use. For the next 20 years, 4% (8% for registered manufacturers) of this cost may be claimed per tax year.
Additions or extensions to existing buildings (not alterations, improvements or repairs) qualify for the same 20% and 4% deductions as above. The Income Tax Act does not define “buildings”. The Oxford dictionary defines a building as “a structure such as a house ... that has a roof and walls”.
This can be used as a basis when deciding if the capital allowance on buildings can be claimed.
Fencing, roads, interlocks, boundary walls and shade nets do not qualify for this allowance. These items may be argued to be part of the building where it is done as part of the initial construction of a new building, but where it is incurred afterwards, no deduction is available under the building allowance.
Allowances
No building allowance can be claimed if:
• A leasehold improvement allowance has already been claimed in terms of section 17 (1)(h); or
• The building is used to provide housing to your employees and in case of a company, where the building is used to provide housing to directors or officials or employees.
Where buildings are sold, the allowances previously claimed should be recouped. The amount that must be included in your taxable income is equal to the market value (limited to cost price) less the remaining tax value (i.e. the amount that has not been claimed for tax purposes). When the market value of the asset is less than the proceeds, the proceeds (limited to cost price) should be used in calculating the recoupment.
When a building is sold, the new owner may only claim a building allowance on the original erection costs of the building. This is different from the purchase price. Furthermore a building can only be claimed once for tax purposes. If you are buying a building that is older than 21 years no further allowances can be claimed.
Therefore, where a building is acquired it is crucial to obtain the tax history of the building. This will ensure that you (the new owner) claim the correct amounts for tax purposes.
• Johan Nel is a partner: corporate tax service at PwC Namibia. Tax Time is published in Market Watch bi-monthly on a Monday.
Using for trade means that either you occupy the building for your business (i.e. your offices, warehouse etc). Alternatively it may also be where you are a property investor and the building is rented out.
It is important to note that you can only claim the allowances if you incurred the costs of erection. Therefore, where you are leasing the property, no building allowance is available as you would not normally incur the capital costs on putting up the building. There may be exceptions to this in the form of leasehold improvements effected on the leased property and we will explore this in future articles.
Twenty percent (20%) of the cost of erection may be claimed in the year during which the building is taken into use. For the next 20 years, 4% (8% for registered manufacturers) of this cost may be claimed per tax year.
Additions or extensions to existing buildings (not alterations, improvements or repairs) qualify for the same 20% and 4% deductions as above. The Income Tax Act does not define “buildings”. The Oxford dictionary defines a building as “a structure such as a house ... that has a roof and walls”.
This can be used as a basis when deciding if the capital allowance on buildings can be claimed.
Fencing, roads, interlocks, boundary walls and shade nets do not qualify for this allowance. These items may be argued to be part of the building where it is done as part of the initial construction of a new building, but where it is incurred afterwards, no deduction is available under the building allowance.
Allowances
No building allowance can be claimed if:
• A leasehold improvement allowance has already been claimed in terms of section 17 (1)(h); or
• The building is used to provide housing to your employees and in case of a company, where the building is used to provide housing to directors or officials or employees.
Where buildings are sold, the allowances previously claimed should be recouped. The amount that must be included in your taxable income is equal to the market value (limited to cost price) less the remaining tax value (i.e. the amount that has not been claimed for tax purposes). When the market value of the asset is less than the proceeds, the proceeds (limited to cost price) should be used in calculating the recoupment.
When a building is sold, the new owner may only claim a building allowance on the original erection costs of the building. This is different from the purchase price. Furthermore a building can only be claimed once for tax purposes. If you are buying a building that is older than 21 years no further allowances can be claimed.
Therefore, where a building is acquired it is crucial to obtain the tax history of the building. This will ensure that you (the new owner) claim the correct amounts for tax purposes.
• Johan Nel is a partner: corporate tax service at PwC Namibia. Tax Time is published in Market Watch bi-monthly on a Monday.
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