About Tax for South African Landlords

Renting out property in South Africa can have several tax implications for both residents and non-residents. Here’s a comprehensive guide to understanding these tax considerations:

Rental Income Tax

All rental income from residential or commercial properties is taxable in South Africa. Property owners must declare this income to the South African Revenue Service (SARS), regardless of residency status. Rental income includes all payments received from tenants, such as:

• Monthly rent
• Fees for utilities if included in the rental amount
• Any additional charges for extra services provided

How is Rental Income Taxed?

Rental income is taxed as part of your normal income at your marginal tax rate, which varies based on income brackets. South Africa uses a progressive tax system, with rates currently ranging from 18% to 45%.

Deductible Expenses

Property owners can deduct specific expenses related to renting out the property, reducing their taxable income. These deductions can include:

• Interest on Bond: Interest on the mortgage or loan taken to purchase the property is deductible.
• Municipal Rates: Charges related to property taxes, sewage, refuse, and water are deductible if the property owner pays them.
• Repairs and Maintenance: Expenses incurred in maintaining the property are deductible, but improvements or upgrades are not.
• Advertising Costs: Any fees paid to advertise the property for rental purposes.
• Property Agent Fees: Commission fees paid to a letting agent are deductible.
• Insurance Premiums: Insurance related to the rental property is deductible, provided it is solely for rental use.

Note: It’s essential to keep accurate records of all expenses, as SARS may require documentation to substantiate deductions.

Capital Gains Tax (CGT)

When a rental property is sold, Capital Gains Tax (CGT) applies to the profit made on the sale. Only a portion of the capital gain is included in taxable income:

• Individuals and Special Trusts: 40% of the capital gain is included in the taxpayer’s income and taxed at the applicable marginal rate.
• Companies: 80% of the capital gain is included.
• Ordinary Trusts: 80% inclusion rate.

This can result in a significant tax liability upon the sale of a rental property, especially if the property has appreciated in value over the ownership period.

Value-Added Tax (VAT)

In most cases, VAT does not apply to residential property rentals, as renting out residential property is an “exempt supply” under the VAT Act. However, commercial property rentals are generally subject to VAT if the landlord is VAT-registered (threshold of R1 million turnover in a 12-month period).

Tax for Non-Residents

Non-residents earning rental income in South Africa are subject to South African income tax on this income. They are required to register as taxpayers and submit an annual tax return.

Double Taxation Agreements (DTA)

South Africa has Double Taxation Agreements (DTAs) with several countries to prevent double taxation. Non-residents should check if a DTA exists between South Africa and their home country, as they might be able to claim tax relief on rental income.

Provisional Tax

If rental income is not the property owner’s primary source of income, they may need to register as a provisional taxpayer. Provisional tax is a method for individuals who earn income not subject to PAYE, requiring tax payments twice a year.

Penalties for Non-Compliance

Failing to declare rental income or filing incorrect information can result in penalties and interest charges from SARS. Accurate record-keeping and timely submissions are crucial to avoid issues with tax authorities.

Conclusion

Renting out property in South Africa has significant tax implications.

Whether you are a resident or non-resident, declaring rental income and understanding deductible expenses, CGT, VAT requirements, and provisional tax is essential to managing your tax obligations effectively.

Consult with a tax professional or advisor to ensure compliance with South African tax laws and to optimize tax planning strategies.

FAQ on the tax implications of renting property in South Africa:

Do I need to pay tax on rental income?

Yes, rental income is taxable in South Africa, whether you are a resident or non-resident. It must be declared on your tax return and will be taxed at your applicable income tax rate.

What expenses can I deduct from my rental income?

Deductible expenses include interest on your mortgage, property maintenance and repairs, municipal rates, insurance premiums, property agent fees, and advertising costs. These deductions help reduce your taxable income.

Is rental income subject to VAT?

No, VAT does not typically apply to residential rentals, as they are classified as “exempt supplies.” However, VAT may apply to commercial property rentals if the landlord is VAT-registered and exceeds the R1 million turnover threshold in a 12-month period.

What is Capital Gains Tax (CGT), and when does it apply?

CGT applies when you sell a rental property and make a profit on the sale. For individuals, 40% of the capital gain is included in taxable income, while companies and ordinary trusts have an 80% inclusion rate.

Are non-residents required to pay tax on rental income in South Africa?

Yes, non-residents are taxed on rental income earned from South African properties. Non-residents should also check for Double Taxation Agreements (DTAs) between South Africa and their home country, as they may be able to claim tax relief.

What is provisional tax, and do I need to pay it?

Provisional tax applies if rental income is not your primary source of income or if you earn additional income that is not subject to PAYE. Provisional taxpayers make tax payments twice a year to cover their estimated tax liability.

Do I need to declare rental income if I’m making a loss?

Yes, you must declare rental income, even if you are making a loss. Declaring a loss may reduce your overall tax liability, as losses can offset other income.

What happens if I don’t declare my rental income?

Failing to declare rental income or providing inaccurate information can lead to penalties and interest charges by SARS. It is important to keep detailed records and ensure timely and accurate tax submissions.

Can I offset rental losses against my other income?

Yes, if your expenses exceed your rental income, creating a loss, you may offset that loss against other taxable income, which can reduce your tax liability.

Should I consult a tax professional?

It is highly recommended that you consult a tax professional or advisor. They can help with tax planning, ensure compliance with South African tax laws, and identify deductions that apply to your rental income.

For more detailed information on the tax implications of renting property in South Africa, you can explore the following resources:

South African Revenue Service (SARS) – Tax on Rental Income

SARS Rental Income Guide

SARS provides detailed guidelines on the tax treatment of rental income, including deductible expenses, capital gains, and provisional tax.

Double Taxation Agreements (DTA) by SARS

SARS DTA Overview

For non-residents, this page provides a list of DTAs that South Africa has with other countries, potentially helping with tax relief.

National Treasury of South Africa

National Treasury Website

The National Treasury outlines South Africa’s tax policy framework and publishes relevant budget documents that may impact rental income taxation.

Legal Articles and Guides on Taxation by LexisNexis South Africa

LexisNexis Tax Guides

LexisNexis offers comprehensive legal guides and articles on taxation in South Africa, including property tax issues.

These resources can help you stay updated on the regulations and best practices for tax compliance when renting out property in South Africa.

Join the South African Landlords Association by clicking the blue link.

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