Do you own, or have you ever thought of opening a guesthouse or bed and breakfast? These special tax breaks available to hotels might just give you the nudge you need. As a “Hotel Keeper” as defined in the Income Tax Act, you may claim a special allowance against your taxable income.
Firstly, let’s have a look at the definition of a “Hotel Keeper”.
“Any person carrying on the business of hotel keeper or boarding or lodging house keeper where meals and sleeping accommodation are supplied to others for money or its equivalent.”
Under this definition, “hotel “ would therefore also include guesthouses and bed and breakfast establishments
1. If you meet this requirement and qualify as a hotel keeper, you may claim a special depreciation allowance of 20% per annum on the following items:
- Machinery, equipment, utensils or any article that you own or bought, and
- Which is brought into use for the first time for the purposes of your trade as hotelkeeper, and
- Is used in your hotel
- Excluding any vehicle or equipment for offices or managers’ or servants’ rooms.
2. Furthermore, you can also claim special allowances on the buildings used for the purposes of hotel keeping.
- an annual allowance of 5% on the cost of the portion of buildings – or improvements made to buildings – used for the purpose of your trade.
This allowance may also be claimed where you lease premises for this purpose and you incur expenditure in improving the building. You unfortunately cannot claim an allowance for leasehold improvements under Section 11 of the Income Tax Act.
- Improvements to the existing hotel buildings which don’t extend the exterior framework of the building, and that commenced on or after 17 March 1993, are subject to an allowance of 20%.
The allowance cannot be extended to the purchaser of hotel buildings as the cost of erection or improvement weren’t incurred by the purchaser. If the buildings are sold, the seller has to add any allowance which he may have recouped, to his taxable income in the tax year during which the allowance was recouped.
Let’s have a look at the following example
Helen is the owner of a guesthouse. She decides to make improvements to her guesthouse building.
Building commences on 1 November 2012. The construction entails the addition of 3 new rooms at a cost of R150,000. She has also decided to improve the interiors of the existing 5 bedrooms at a cost of R100,000. By improving the interior of the last mentioned existing rooms, she doesn’t extend the exterior framework of the building.
Helen is therefore entitled to include the following special deductions in her tax calculation:
New additions: She can claim an annual allowance of 5% on the cost of the new rooms (R150,000 x 5% = R7,500) The cost of the rooms are subsequently written off over a 20 year period.
Improvements: She can claim an annual allowance of 20% on the improvements to the existing rooms (R100,000 x 20% = R20,000)