n Business Tax and Company Law Quarterly - Taxation under the new REIT regime for listed property companies : a work in progress

Volume 4, Issue 3
  • ISSN : 2219-1585


Section 25BB was inserted in the Income Tax Act 58 of 1962 by the Taxation Laws Amendment Act 22 of 2012. The new section introduces a regime that regulates the taxation of property investment companies, the shares of which are listed on the Johannesburg Securities Exchange ('JSE') as shares in a 'REIT', as defined in the JSE Listings Requirements. 'REIT' stands for Real Estate Investment Trust and is widely used in the property investment industry to describe property companies.

The REIT regime has been a long time coming, its gestation period having taken in excess of six years. Shortly after the section came into force, however, on 4 July 2013 the Taxation Laws Amendment Bill, 2013, ('TLAB') was published for public comment, proposing in section 80 thereof the substitution of a completely revised section 25BB. Though the essence of the existing provision is retained in the revised section, some important changes are proposed. This suggests that problems are being encountered in the implementation of the new REIT regime. In particular, it is understood that problems have arisen regarding the conversion of existing listed property loan stock companies and the treatment of debentures held as part of the linked units in such companies. Consequently the implementation of the REIT regime is still a work in progress.
This article examines firstly the existing provisions of section 25BB and thereafter explains the changes proposed in the substituted section as published in the draft TLAB. The aspects of the current section dealt with include: the definition of a REIT; other important definitions, including qualifying distribution and rental income; the rules governing the permitted deductions from gross income of a REIT or a resident controlled property company ('CPC'); examples of the application of the deduction provisions; the tax treatment of financial instruments; non-deductible allowances in respect of immovable property; capital gains treatment; treatment of interest; taxation of dividends distributed to shareholders of a REIT or CPC; and conversion of existing property investment vehicles to REITs. Thereafter the article details the proposed amendments to section 25BB in the draft TLAB as compared with the existing provisions.
The article concludes that property investment companies listed on the JSE and their investors have yet to come fully to grips with the REIT regime and expresses the hope that the property industry, together with SARS and the JSE are able to iron out the remaining difficulties preventing the establishment of a well-conceived and durable REIT regime with sustainable tax rules.

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