What Is Their Value To You?

As an example, take an air-conditioned office building purchased for R100 million. The plant and machinery qualifying for capital allowances might have an apportioned cost of say R20 million. As an illustration this may be written down against tax by R3,200,000 per year for the first five years.

With the current tax rate on companies of 29%, the saving to the investor's tax bill will be R928,000 in the first year alone, with an overall saving in the first five years of R4,640,000 in this example.

	Capital Allowances R	Annual Write-Down R	Tax Relief to a 29% Taxpayer R
Year 1	20,000,000	3,200,000	928,000
Year 2		3,200,000	928,000
Year 3		3,200,000	928,000
Year 4		3,200,000	928,000
Year 5		3,200,000	928,000

If this property has an 8% yield, it will be equivalent to only 5.68% after 29% tax. Capital allowances relief of R928,000 in the first year has the effect of increasing the net yield to 6.61%.