The Tax Implications of a Rental Property

rental-property-taxRental 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.

4 thoughts on “The Tax Implications of a Rental Property

  1. Thanks for this informative article. My questions is it advisable to use your income to put additional deposits into your mortgage loans ,to reduce loan payment period therefore settle your loan earlier say within 5 or 8 years. What are the tax implications

    • Wow, you understand the issues involved. Tax must influence your decision, and who soon you pay off is influenced by what alternative investments are available.

      Unfortunately there is not one answer to this question. Have your Financial Planner do a “what if” calculation for you.

      That will allow you to save as much as possible. A “wrong” decision could easily cost you R30 000, so take advice.

      If they cannot help you, change your planner!

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