News & Advice Trending

rental property owners

Over the past few years, economic uncertainty and stock market volatility has boosted investor interest in residential rental property. And it can be a great source of income as well as long-term capital gain, but what many investors forget is that those returns are not tax-free.

“In South Africa, owners are liable in terms of the Income Tax Act to pay tax on the profits they make from any rental properties, and SARS requires them to keep and submit records of all income and expenditure with regard to those properties in order to accurately calculate the profits,” says Jan Davel, MD of the RealNet estate agency group.

“This means that even if you are just breaking even on your rental property, or only renting out your holiday home or garden flat on an occasional basis, you can’t just quietly pocket the rental you receive and not declare it as part of your annual income.”

Having said that, however, most rental property owners also don’t realise, he says, that they can deduct certain expenses from their gross rental income to determine the profit and therefore reduce their tax liability.

These expenses include:

  • Municipal rates and taxes;
  • The interest on the home loan used to buy the property;
  • Sectional title levies if applicable;
  • Any advertising costs paid to find new tenants;
  • Any fees or commission paid to a managing or letting agent;
  • The annual home owners’ insurance (HOC) premium;
  • The cost of security and garden services; and
  • The cost of repairs and maintenance needed to keep the property in good condition.

“But it must be said that SARS will expect landlords to present invoices, receipts and bank statements as proof of any and all expenses that they claim. In addition, landlords may not claim VAT as an expense or charge VAT on the rental.”

Davel also notes that expenditure of a capital nature, including the purchase price of the property and the cost of any additions or improvements (such as an extra bedroom or the refitting of an old kitchen) may not be deducted from rental received – but could possibly be added to the “base cost” of the property for Capital Gains Tax (CGT) purposes.

“And that brings us to the question of whether the investor will be liable for CGT or for income tax if and when the property is resold. In general, if you can show that you bought a property with the intention of holding on to it as a long-term investment, and then rented it out for a number of years, SARS will regard the proceeds of the eventual sale as being of a capital nature, and thus subject to CGT rather than income tax.”

“But if you buy an investment property and then quickly resell it, SARS is quite likely to categorise the original purchase as speculative, and the proceeds of your sale as taxable income – even if your original intention was to hold on to the property and your sale was prompted only by a sudden change of circumstance.”

The difference between the two possible tax liabilities is of course very large, he says, and underlines once again the fact that time is the property investor’s greatest ally.

This article “Hot Tax Tips For Rental Property Owners” was issued by RealNet.

Shares 0

Leave a Reply

You might also like...

Buy-to-let buying remains weak, according FNB Survey
10 Common Mistakes Commercial Property Landlords Make
3 Security Considerations When Renting A Property
3 Tips For Building A Successful Property Portfolio
5 Things To Consider Before Buying An Investment Property
5 Top Tips For Rental Property Owners
Future of property in sectional title sector
Unpacking new property legislation
South Africa’s Natural Attractions are Popularising Eco-Estates
Lightstone predicts a buyer’s market for 2017
Don’t Wait For “The One” Before You Buy a Home
Don’t Let Criminals Take The Pleasure Out Of Your Leisure
Comments: Budget on Economic Growth
Should You Ever Buy or Sell Property To a Friend or Relative?
New Generation Digs Now On The Rise
Western Cape House Prices Remain Steady
Investment hot spots – Waterfront and Clifton apartment prices hit historic highs despite economic lows
Sectional Title Scheme: NEW LEVY STRUCTURE Required!
South African Holiday Towns Now Underperforming Metros
Stronger Rand Makes South African Property Expensive For Foreign Buyers
Know The Risks Before Building Airbnb Castles In The Sky
Future of property in sectional title sector
St Francis Bay’s housing market attracting top dollar
Lightstone predicts a buyer’s market for 2017
Factors that determine property value
Pros and Cons of Buying Property Through a Trust
Don’t Wait For “The One” Before You Buy a Home
Purchasing Property And Compliance Certificates: Great Expectations?
Investment hot spots – Waterfront and Clifton apartment prices hit historic highs despite economic lows
First-Time Home Buyer Should Act Sooner Rather Than Later
Buyers in Cape Winelands Predominantly Gauteng Semigrants, Increasingly Europeans
South African Holiday Towns Now Underperforming Metros
Time To Make The Right Choice For Retirement Living
5 Ways To Maximise Your Credit Rating
Budget Tips For A Smooth Switch From Renting To Owning
Buy First And Cut Your Stress Level
Lightstone predicts a buyer’s market for 2017
House Won’t Sell? Here’s What You’re Doing Wrong!
Factors that determine property value
Create Home Buyer Appeal Through Home Staging
Is There A Difference Between Offers?
How To Decide When To Sell
Does My Agent Care About Me Or Just The Commission?
3 Questions To Ask Before Listing Your Home
I Just Bought A Home – Now I’m Unexpectedly Being Transferred
What Is The Difference Between Value And Marketability?
Time To Stage Your Home When Selling
Get Higher Offers On Your Empty Home
When Is The Best Time To Sell A Property?
How Important Is Financial Fitness For Home Sellers?
Real Estate’s Dirty Little Secret And Why It’s Costing You Money!
Average residential rental values on the increase
Is It Possible To Terminate A Lease Agreement Without Recourse?
New Generation Digs Now On The Rise
When Is Your Rent Due?
Gauteng Property Rental Market Forecasts Growth
Keeping Track of Parking On Common Property
How And When To Legally Evict Tenants
The Rental Housing Amendment Act: Waiting For Light In The Dark?
Tenants: Be Aware Of Ongoing Credit Checks
How To Rent With Pets
Is My Landlord Liable To Provide Security?
Why Are Property Inspections So Important?
Rental Property: To Furnish Or Not To Furnish?
Why Prevention Is Better Than Cure: Eviction Procedures For Landlords
Important Insurance Issues For Landlords
5 Mistakes To Avoid When Relocating
7 Tips For Packing And Moving Quickly
Moving? Things To Think About!
Maximising Small Spaces
7 Tips To Help Your Children To Adapt To The Move
What To Do With Your Home When You Have To Relocate
Moving With Pets Can Be Tricky
Estate Agent Moving Tips
Telltale Signs You Need A New Home
Seven Signs You Need A New Nest
Über Wealthy On The Increase And On The Move
St Francis Bay’s housing market attracting top dollar
Factors that determine property value
Average residential rental values on the increase
4 Things Homeowners Waste Money On 
Pros and Cons of Buying Property Through a Trust
Comments: Budget on Economic Growth
Investment hot spots – Waterfront and Clifton apartment prices hit historic highs despite economic lows
First-Time Home Buyer Should Act Sooner Rather Than Later
Sectional Title Scheme: NEW LEVY STRUCTURE Required!
Buyers in Cape Winelands Predominantly Gauteng Semigrants, Increasingly Europeans
Dangers of Debt Consolidation Without A Plan
5 Biggest Downsides of Paying Off Your Bond
Push Into South African Real Estate Not Slowing Down
Problems Repaying Your Bond? Get The Banks In Your Corner!
How To Kill The Interest On Your Bond
Commercial property still important asset class for private buyers
Know The Risks Before Building Airbnb Castles In The Sky
Green Buildings Catching On In South Africa
Digital Disruption And The South African Commercial Real Estate Market
Can You Run A Business From A Sectional Title Home?
What’s Driving Change In The Commercial Property Sector?
5 Ways Commercial Property Space Planning Can Save You Money
Investing In Commercial Property an Attractive Option
3 Obvious Signs That It’s Time For Office Relocation
3 Things You Need To Know Before Buying Vacant Land
Price Correction In Commercial Property Market
South Africa: Evolution of Industrial Properties
The Commercial Times Are Changing
Healthy, Sustained Demand For Commercial Property
Incoming Inspections Are Vital For Rental Property