Section 13sex explained: the SA property allowance in 2026

What Section 13sex actually is

Section 13sex of the Income Tax Act (Act 58 of 1962) is a capital allowance that lets the owner of at least five new and unused residential units deduct 5% of their cost per year, straight-line, for 20 years. The allowance applies to the cost of the buildings — not the land — and reduces ordinary taxable income, not capital gains. It is not a loophole; it is an explicit legislative incentive to encourage private investment in residential rental stock.

On R10 million of qualifying residential units (for example, five R2 million new apartments), the annual deduction is R500,000. At the 45% marginal rate, that is worth R225,000 per year in tax savings — every year, for 20 years. Over the full 20-year period, the cumulative tax saving at the 45% rate is R4.5 million. On R10 million of property.

The five-unit requirement in practice

The minimum five-unit threshold is the main barrier for most investors. A single buy-to-let flat does not qualify. Owning two or three units does not qualify. The units must be five or more, and they must all be new and unused at the time of acquisition — you cannot claim Section 13sex on resale properties, even if they are newly renovated.

The five units do not need to be in the same building or complex, but they must all be new. In practice, many investors who use Section 13sex buy off-plan in new developments — often multiple units in the same development at a developer-negotiated price. This also gives them an advantage on the building cost allocation, which is what the 5% deduction is calculated on. The split between land and building is important: SARS requires a reasonable allocation, and land does not qualify for the allowance.

How Section 13sex interacts with RA and TFSA

Section 13sex reduces taxable income from rental and employment income. This means that if you are a high earner at the 41% or 45% marginal rate, the 13sex deduction can drop you into a lower bracket on the portion of your income it covers. It stacks with RA deductions (which reduce income before the 13sex calculation) and TFSA contributions (which are not deductible but provide tax-free growth). The optimal sequencing is: maximise RA deduction first, then apply 13sex to reduce remaining taxable income, then fund the TFSA with what remains.

The Tax Engine models all three simultaneously. You can see how each additional component changes your effective tax rate, total tax paid, and projected wealth at horizon. For investors who already hold five qualifying units, the 13sex component often has the largest single impact on the tax result.

When Section 13sex is not worth the complexity

Section 13sex adds meaningful compliance complexity. You need to keep records of the original building cost (not just purchase price), maintain a proper allocation between land and building, and ensure the units remain rented and in good condition. SARS can and does audit 13sex claims — particularly large ones at high marginal rates. If you do not have a tax practitioner already, you will need one.

At lower marginal rates (below 31%), the per-rand value of the deduction is smaller and the hassle of compliance may outweigh the saving. Section 13sex is most powerful — and most defensible — for investors who are already at the 41% or 45% marginal rate, who own the properties through their personal name (not a company, which changes the applicable rate), and who have a qualified tax practitioner managing their returns.

Capital gains implications

When you sell a Section 13sex property, SARS recouds the allowances claimed. This means the proceeds on sale are taxed not only on the capital gain but also on the portion of cost already deducted — this is called a recoupment and it is taxed as ordinary income, not at the lower CGT inclusion rate. The recoupment can be large: if you claimed R500,000 in deductions over 10 years on a R2 million unit and then sell, the R500,000 is recouped as ordinary income in the year of sale. Plan your exit carefully.