TAX TIPS FOR LANDLORDS

Owning a rental property portfolio that provides an income is much like owning a business, and as such there are tax implications and dues that need to be paid to the South Africa Revenue Service.

As a landlord, you are required to declare the total amount of rental income received as gross income and will be taxed at the marginal Income Tax Rate. The below table is a guideline of the personal tax rates that are currently applicable in South Africa:

Personal Tax Income Rate 2017/2018

 

R0 - R189 880

18% of each R1

R189 881 – R296 540

R34 178 + 26% of the amount above R189 880

R296 541 – R410 460

R61 910 + 31% of the amount above R296 540

R410 461 – R555 600

R97 225 + 36% of the amount above R410 460

R555 601 – R708 310

R149 475 + 39% of the amount above R555 600

R708 311 – R1 500 000

R209 032 + 41% of the amount above R708 310

R1 500 000 and above

R533 625 + 45% of the amount above R1 500 000

 

While you are required to declare the total income acquired through letting out your property, there are certain deductions that can be made, such as a non-capital expense. A landlord is obliged to incur expenses during the period that the property is let out. Deducting the non-capital expenses from your tax return will reduce the taxable income and possibly put you in a lower tax bracket, which will be of benefit.

Examples of non-capital expenses include the following:

  • Rental agent’s commission or fees for securing a tenant
  • Advertising costs of marketing the property
  • Insurance fees, levies, municipal rates, water and electricity
  • Interest paid on the home loan if applicable
  • Cleaning costs, garden services and security
  • If the property is furnished, the depreciation of the furniture’s value can be deducted
  • Legal fees incurred from disputes with tenants – this includes the eviction of tenants
  • Repairs and maintenance costs – this does not include improvements to the property

Expenses that are regarded to be of a capital nature cannot be deducted. These would include any expenses incurred while renovating or adding on to the property.  If the tenant has moved out of the property and you decide to make repairs to the home to sell it, these expenses cannot be deducted as they did not happen while the tenant occupied the property.

If the total of the deductions exceeds the rental income received and you wish to declare a net rental loss, the Income Tax Act contains a ring-fencing provision that may come into play depending on the circumstances. If the provision does apply, you will not be able to offset your rental losses against income received from other sources.

Be warned that evading paying tax on rental income will get you into deep financial water. Rental agents are obligated to provide SARS with a record of the rental income received and paid over to landlords. As a result, it is very easy for SARS to find any discrepancies in the landlord’s tax return. If found out evading tax after notification of an audit, you could be facing a hefty penalty or worse – imprisonment. 

While all taxable income must reflect on the return, reducing it by the relevant expenditure will assist in reducing the amount of money that leaves your back pocket.

TAX TIPS FOR LANDLORDS

Owning a rental property portfolio that provides an income is much like owning a business, and as such there are tax implications and dues that need to be paid to the South Africa Revenue Service.

As a landlord, you are required to declare the total amount of rental income received as gross income and will be taxed at the marginal Income Tax Rate. The below table is a guideline of the personal tax rates that are currently applicable in South Africa:

Personal Tax Income Rate 2017/2018

 

R0 - R189 880

18% of each R1

R189 881 – R296 540

R34 178 + 26% of the amount above R189 880

R296 541 – R410 460

R61 910 + 31% of the amount above R296 540

R410 461 – R555 600

R97 225 + 36% of the amount above R410 460

R555 601 – R708 310

R149 475 + 39% of the amount above R555 600

R708 311 – R1 500 000

R209 032 + 41% of the amount above R708 310

R1 500 000 and above

R533 625 + 45% of the amount above R1 500 000

 

While you are required to declare the total income acquired through letting out your property, there are certain deductions that can be made, such as a non-capital expense. A landlord is obliged to incur expenses during the period that the property is let out. Deducting the non-capital expenses from your tax return will reduce the taxable income and possibly put you in a lower tax bracket, which will be of benefit.

Examples of non-capital expenses include the following:

  • Rental agent’s commission or fees for securing a tenant
  • Advertising costs of marketing the property
  • Insurance fees, levies, municipal rates, water and electricity
  • Interest paid on the home loan if applicable
  • Cleaning costs, garden services and security
  • If the property is furnished, the depreciation of the furniture’s value can be deducted
  • Legal fees incurred from disputes with tenants – this includes the eviction of tenants
  • Repairs and maintenance costs – this does not include improvements to the property

Expenses that are regarded to be of a capital nature cannot be deducted. These would include any expenses incurred while renovating or adding on to the property.  If the tenant has moved out of the property and you decide to make repairs to the home to sell it, these expenses cannot be deducted as they did not happen while the tenant occupied the property.

If the total of the deductions exceeds the rental income received and you wish to declare a net rental loss, the Income Tax Act contains a ring-fencing provision that may come into play depending on the circumstances. If the provision does apply, you will not be able to offset your rental losses against income received from other sources.

Be warned that evading paying tax on rental income will get you into deep financial water. Rental agents are obligated to provide SARS with a record of the rental income received and paid over to landlords. As a result, it is very easy for SARS to find any discrepancies in the landlord’s tax return. If found out evading tax after notification of an audit, you could be facing a hefty penalty or worse – imprisonment. 

While all taxable income must reflect on the return, reducing it by the relevant expenditure will assist in reducing the amount of money that leaves your back pocket.

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