By Sheldene du Plessis – Senior Accountant: Ascendant Financial Services
Renting out residential accommodation in South Africa can be a lucrative venture, but it comes with tax obligations that property owners need to understand. In this guide, we will explore how rental income is taxed, the permissible expenses that can be deducted, and provide a checklist of essential documents to keep for tax season.
Taxation of Rental Income
Any income received from renting out residential properties, including holiday homes, bed-and-breakfast establishments and dwelling houses, is subject to income tax as per the South African Revenue Service. This also applies to additional amounts received for the rental, such as lease premiums.
Calculation of Tax on Rental Income
Rental income is added to any other income the property owner may have but is reduced by certain permissible expenses. Lease premiums, when received, are subject to tax in the year of assessment during which they accrue or are received. Rental deposits need not be included in gross income initially but become taxable when eventually applied by the lessor.
Permissible Expenses
To determine the taxable rental income, property owners can deduct permissible expenses incurred during the period the property was let. Examples of allowable expenses include rates and taxes, bond interest, agency fees, insurance (excluding household contents or bond insurance), garden services, repairs, and security or property levies.
Checklist for Documents
To streamline the tax filing process, property owners should keep the following documents on file throughout the year:
- Monthly rates and taxes statements
- Monthly bank statements of home loans
- Levy or homeowners association statements
- Homeowners insurance documentation
- Utility bills included in the rental income
- Advertising invoices or agency fee statements
- Slips and invoices for repairs (e.g. burst geysers)
- Records of garden services or other necessary services to make the property rentable
Expenses Not Allowed
Capital expenses or those not related to the production of rental income are not deductible. These include costs for property improvements, which should be distinguished from repairs and maintenance. Repairs and maintenance costs are allowed deductions when restoring an asset to its original condition due to damage or deterioration.
Exceeding Rental Income with Expenses
If permissible expenses exceed rental income, the resulting loss can be set off against other income earned by the individual. This provides a potential tax benefit for property owners facing a net loss on their rental investment.
Conclusion
Understanding the tax implications of rental income is crucial for property owners in South Africa. By keeping accurate records, deducting permissible expenses and staying informed about tax regulations, property owners can ensure compliance with SARS requirements and maximize their tax benefits. For more detailed information and personalised advice, property owners are encouraged to refer to SARS resources.
If you find the process daunting, remember that professional help is just a call away, always ready to assist you in making the most of your financial opportunities.
Contact one of our tax practitioners at Ascendant Financial Services for a one-on-one consultation to assist in tax planning and income tax submissions.
References:
Tax on rental income
