Our panel has received a question from a landlord who wants to know what the tax implications of rental income are.
He asks what has to be declared and what expenses can be deducted from such income.
In terms of our tax rules, says Lucille Geldenhuys from Lucille Geldenhuys Attorneys in Stellenbosch, all revenue or income earned from any source has to be declared to the South African Revenue Services (Sars).
“That means that rental income has to be declared as part of your gross income.”
Interest on the property’s bond, repairs and maintenance are expenses that are deductibe against the rental income, according to Geldenhuys.
“If it forms part of a sectional title scheme, the levy is also deductible. So too municipal rates and taxes and the letting agent’s fees should you make use of one.”
Geldenhuys says expenses that are not recovered from the tenant, including security, garden services and utilities, can also be deducted.
“The rental from a property is added to your income from other sources. Once exempt income as well as the allowed deductions have been subtracted, tax is payable on a sliding scale.”
Geldenhuys says keeping these principles in mind is therefore important when calculating what the potential rental income to be generated by a property has to be.
Schalk van der Merwe from Rawson Properties Helderberg says it may well be that rental income may be insufficient to cover bond payments. “However, keep in mind that capital appreciation forms part of the investment benefits linked to property.”
Capital appreciation, says Van der Merwe, opens up the topic of capital gains tax when selling a property. “This is a vast field, but keep in mind that certain deductions are also applicable when determining the taxable capital gain.”
The acquisition costs relating to a property, in other words what was paid to acquire the asset, form part of the base cost from where capital gains are calculated, according to Van der Merwe.
“These include the costs associated with the acquisition and disposal of the asset (for example legal fees, agent’s commission, advertising costs and transfer duty). Any improvement costs incurred must be recorded, but here maintenance costs are excluded.”
Van der Merwe says a portion of the taxable gain that is determined is also included in the taxable income for the year and the normal tax calculation at the relevant marginal rates follows.
“Keep in mind that just about any investment has income tax and/or capital gains tax implications, not just property.”
Send your property related questions to coetzee[at]fullstopcom.com.
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