*It’s important to note that at the time of writing this article the number of confirmed COVID-19 infections continues to rise in South Africa and around the world, and the country is in the midst of an economic event that has little precedent.
In his address on Sunday 16 March 2020, President Ramaphosa admitted that the coronavirus is not just a health concern, but that it is also a real danger to the country’s economy. The President emphasised that “the state will be putting together a “package of interventions” of “various fiscal and other measures” to help the economy through this period”.
Economists are calling for a large cut in interest rates and an announcement is expected from the Reserve Bank that the Repo rate will be cut as the government moves to implement a range of measures to lessen the economic impact of the virus.
Finance Minister Tito Mboweni delivered his 2020 Budget Speech in February, and for the first time in several years, analysts believe that there is good cause to be optimistic. The 2020 budget speech contained a variety of good news for consumers and businesses, including tax relief on several fronts.
Here’s how it will affect the economy and the commercial property sector in particular.
Good news for SA consumers, some uncertainty for companies
With low growth expectations for the next few years, the government is keen to offer South Africans some relief in the form of lower taxes in 2020/21.
- The minimum personal tax threshold will increase from R79 000 to R83 000
- Medical aid tax credits will increase to R319 for the first two members and R215 for each member thereafter.
- The tax-free savings account cap has increased to R36 000 as of the 1st of March.
- South Africans working abroad will only be taxed on income exceeding R1.25 million per year.
When it comes to company taxes, the 2020 Budget offered a period of relief before a major overhaul that’s set to begin from 2021.
- Company tax will remain unchanged at 28% – but a restructuring of the corporate tax system is on the cards in the medium term.
- Interest expense deductions are expected to be capped at 30% of earnings from 2021.
- Assessable losses carried forward will be capped at 80% of taxable income from 2021.
Importantly for the commercial property sector, the Section 12I corporate tax incentives currently in place are being placed under review. The Urban Development Zone incentive will be extended until March 2021.
2020 – a good year to buy property in Cape Town?
The 2020 Budget offers some relief for South African consumers, which may fuel consumption and put businesses in a better position this year.
However, the lack of clarity about the future of corporate tax policy may cause some reluctance among commercial property buyers – but these jitters may not be justified.
For those looking to enter the property market, Finance Minister Tito Mboweni announced that there would be no transfer duty on properties of R1million or less. Carl Coetzee, of BetterBond feels that this alleviates the financial burden on first-time homeowners and that; “It’s encouraging for the economy at large too, as property investment serves as an important barometer for the fiscal health of a country’.
From a commercial property Cape Town investment point of view, we believe that now is an excellent time to purchase commercial property. As the market recovers in the coming years, wise investors could see excellent returns and once-in-a-decade prices.
To view our portfolio of commercial property in the greater Cape Town area, contact our team of area specialists today.