Rental income Tax Deductions

Rental income Tax Deductions.

This article first appeared in the 2nd quarter 2018 edition of Personal Finance magazine.

All income from property investments, including rental income, must be declared to the South African Revenue Service (SARS) and is subject to income tax. In preparation for tax season, you can begin gathering all the supporting documents that are needed to submit your tax return. The first important point to note when reviewing the income-tax implications of residential properties is the difference between a primary residence and a buy-to-let residential property.

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A primary residence is occupied by the owner of the property, and because it does not generate taxable income for the owner, the costs incurred in relation to the property cannot be deducted for income tax purposes.

Rental properties are leased by a tenant, and the owner of the property (the lessor – which could be an individual, company or trust) receives a monthly rental income in return. All the costs incurred in generating the rental income can be deducted when calculating taxable income.

Apart from the long-term rental of an investment property, income-generating residential accommodation includes holiday homes that are let out to guests, bed-and-breakfast establishments, guesthouses, and a room of your house or granny flat that is sub-let.

Craig Hutchison, the chief executive of Engel & Völkers Southern Africa, says.. An important factor with owning an investment property is that all expenses are deductible from the rental income, before tax is calculated. These costs typically include property management fees, municipal rates, levies charged by body corporates, repairs and maintenance, insurance premiums and municipal service costs that are paid by the property owner. Proper accounting records therefore need to be kept in order to provide SARS with supporting documents for the deductions claimed, if required to do so.

The rental income should be added to any other taxable income you may have received. Any amount paid to you in addition to the monthly rental is also subject to income tax.

A refundable deposit paid by a tenant is not taxable provided it is kept separately in a trust account and is not used by you. If it is forfeited by the tenant, then it is taxable.

Author: Craig Hutchison

Original Publication: IOL