Tax and your rental investment property

An important aspect of owning a rental property investment is to ensure that you treat it as a business and keep careful records of all income and expenditure for tax purposes, say property agents from Seeff Southern Suburbs.

All rental income earned is subject to tax

Regardless of whether you rent out an entire property or just a room, flat or cottage, the rental income will need to be declared for tax purposes. It should be included as part of your income on your annual tax return.

Rental expenses can be deducted from the income

At the same time, there are numerous expenses that you can deduct to reduce the tax liability on your rental income.

Expenses which can be deducted must relate directly and only to the rental property. These include the property taxes and utilities such as water, electricity, refuse and so on. You can also deduct the cost of cleaning, maintaining the garden and general repairs and maintenance.

If there is a mortgage bond on the property, you can deduct the interest as well as any bank charges. You can also deduct homeowner's insurance pertaining to the rental property. Marketing costs relating to sourcing and placing a tenant, including the rental agency commission, can also be deducted.

Capital expenditure may not be deducted

Capital expenditure which relates to improving the property cannot be deducted.

Should you find that there is a net loss once the expenses are deducted from the income, you may off-set that loss against your other income provided there is no "ring-fencing" provision, i.e. an anti-tax avoidance measure, which applies.

Capital Gains Tax (CGT) applies when you sell your rental investment

Should you decide to sell your rental property investment, then the normal Capital Gains Tax (CGT) on the sale of immovable property will apply.

In the case of CGT, there is a R2 million exclusion which applies to a primary residence. That means that when you calculate your net gain, i.e. the original purchase price and improvements ("base cost") deducted from the selling price, the first R2 million is not subject to tax.

If the property is not a primary residence, then the exclusion of R2 million falls away, however, you can still deduct the R40,000 general annual exclusion allowance for individuals.

The CGT tax rate is lower and currently stands at 18% as published on the SARS website. Visit www.sars.gov.za for more information.

As leading rental agents in the Southern Suburbs, you are assured that your rental investment property is in good hands. Contact one of our rental agents today!

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