Do You Need To Pay Tax On Your Rental Income?

Maximising Rental Property Deductions and Reducing Tax Liability in South Africa

If you are a rental property owner in South Africa, understanding how to maximise deductions and minimise tax liability is crucial. By staying compliant with the South African Tax Act of 1962 and leveraging allowable deductions, you can significantly impact your taxable rental income and financial benefits.

Industry Example:

Let us consider the case of owning a property you use for airbnb purposes and earning rental income. Many expenses related to your rental property are deductible, such as repair costs, maintenance expenses, property management fees, and mortgage bond interest. Utilising these deductions smartly can effectively lower your taxable rental income, providing you with substantial tax savings.

Steps to Take:

Keep Detailed Records: Maintaining thorough records of all rental property income and expenses is essential. Precise record-keeping will help accurately calculate deductions and prepare tax returns, ensuring compliance with tax regulations.

Know the South African Tax Act: Familiarise yourself with the specific requirements and limitations outlined in the South African Tax Act. Comprehending these rules will help identify eligible expenses for deductions and ensure adherence to tax laws.

Seek Expert Advice: Consult with a tax professional specialized in rental property tax deductions. Expert advice can optimise your deductions based on your unique circumstances and ensure compliance with tax regulations.

Do not Miss Out on Tax Savings!

As a rental property owner, taking advantage of available deductions is vital. Doing so can significantly impact your tax liability and increase your financial benefits. By following these steps and staying informed about tax-related matters, you can make the most of your rental property investments.

Do I Need to Pay Tax on My Rental Income?

In South Africa, all rental income, whether from a property or a room in your home, must be declared and subject to taxation. It doesn't matter if the rental income is your sole income source or supplementary to your salary; declaring rental income to the South African Revenue Service (SARS) is mandatory.

Calculating Tax on Rental Income:

All rental income, including monthly rental and additional amounts, should be added to your total taxable income.

Tax Deductions for Your Rental Property:

The good news is that you can deduct certain expenses related to your rental property, which can significantly reduce your taxable rental income. These allowable deductions include:

Monthly Costs: Electricity, rates, taxes, water, levies to the local municipality, AirBnB agent's, and rental agent fees, as well as accountant's fees.

Other Deductible Costs: Bond interest (only the interest portion), advertising expenses, property insurance (for the property itself, not household contents), garden services, security and property levies, wear and tear on furniture, repairs, and maintenance.

What Expenses Are "Not" Allowed?

It is essential to understand that certain expenses are not tax-deductible. Home improvements that increase the property's income-earning capacity or add value to it (e.g., installing air conditioning or renovating the kitchen) cannot be deducted from rental income. However, they may reduce Capital Gains Tax when the property is eventually sold.

VAT expenses for the supply of "dwelling" are also exempt for VAT purposes and cannot be deducted.

How to Deduct Rental Expenses:

When you're renting out only a portion of your property, you can deduct a proportionate amount of your rental-related expenses. The percentage is calculated by dividing the floor area being rented by the total floor area of the property, including garages and outbuildings.

Example:

Suppose you have a 500-square-meter home with a separate flatlet rented out for 250 days in a tax year, and the flatlet is 180 square meters. The percentage is calculated as follows: 180 / 500 x 100 = 36%.

You can then use this percentage to allocate rental income and expenses accordingly on your tax return.

Reducing Tax on Rental Income:

Another effective way to reduce your rental income tax is through depreciating furniture inside your rental property. You can deduct a percentage of the costs of replaceable furniture each year, as allowed by SARS. This is known as "depreciation," and it can be declared in the Local Rental Income section of your tax return.

Remember that assets with a purchase price above R7,000 are depreciated over several years, while items costing less than R7,000 are expensed in the year of purchase.

As a rental property owner in South Africa, understanding tax deductions and keeping accurate records are essential to maximise benefits and minimise tax liability. Seek professional advice when needed and ensure compliance with the South African Tax Act to make the most of your rental property investment. Do not miss out on potential tax savings!

For more information or assistance with your rental property tax planning, visit our website at www.lordebusiness.solutions or contact us via email at natasha@lordebusiness.solutions.