Rental properties are evergreen investments in South Africa. From family homes and apartments in established suburbs to sought-after coastal properties that attract a significant rental premium, this asset class offers the stability of property with the potential to earn good monthly returns as the value of the property increases over time.
If you are a rental property owner or are thinking of investing in one, bear in mind that a secondary rental property is not without its tax implications. By understanding how to declare income and expenses on your rental property, you’ll be able to take advantage of your investment without worrying about taxation difficulties.
Rental Income is Gross Income
Your total income from the rental of the property must be declared as gross income. Naturally, the expenses you incur in generating this income may be deducted – these include estate agent’s commissions, bond payments, water, electricity, rates and extra levies, and the cost of a cleaning service.
Don’t Forget Insurance
The insurance premium on a rental property is likely to be higher than normal, particularly where contents insurance is concerned since the property is being used commercially. Your insurance costs for the period during which the property was let are deductable.
Paying what is Due
Rental agents submit their rental database to SARS on a regular basis, so honesty is the best policy when it comes to declaring your rental income. With the number of expenses that may be deducted, you may not end up paying quite so much tax as you may think.
Net Rental Losses
If your expenses exceed your rental income for the tax year, bear in mind that there is a provision in section 20A of the Tax Act which will not allow you to offset these losses against your other income. The provision is not always applied, and if you are in any doubt as to this process your financial advisor will be able to offer you an in-depth assessment or refer you to a tax practitioner for further consultation.