Real estate investment trust tax regime: analysing the implications of building allowances

Abstract

In a relatively short space of time the South African Real Estate Investment Trust (REIT) regime has become a major factor in the South African listed property sector. Consequently, it created significant taxation considerations for the listed property company, its shareholders and the South African Revenue Service (SARS). One of these considerations is the disallowance of building allowances under the REIT regime. A building allowances can be a significant tax deduction for property companies and therefore raises the question of whether the South African REIT regime can accommodate the building allowances tax deduction and take advantage of the benefits. Unfortunately, the current regime will not be able to function effectively with building allowances, however these obstacles can be overcome by making adjustments to REIT tax legislation. The amendments will allow the REIT to distribute and deduct the maximum available cash flow when declaring the REIT dividend. As well as the deferment of the future recoupment when a building is disposed of and replaced with another building.