Are There Tax Implications for Rental Income in South Africa?

If you’re a landlord in South Africa, it’s essential to understand that rental income is taxable. The South African Revenue Service (SARS) treats rental income just like any other form of income, and you are legally required to declare it in your annual tax return.

Failing to do so can lead to penalties, interest, and even legal action.

This guide explains what constitutes taxable rental income, how it is calculated, the deductions you can claim, and best practices for staying compliant.

What Counts as Rental Income?

Rental income isn’t just the monthly rent paid by your tenant. SARS considers the total amount received or accrued from letting out your property.

This includes:

• Monthly rent payments.
• Payments for the right of use (even if irregular or once-off).
• Additional charges, such as parking, furniture rental, or utilities, are included in the rent.
• Key money or lease premiums.

If you own multiple rental properties, all of their income must be declared.

Who Must Declare Rental Income?

• Individuals: Anyone earning rental income from residential or commercial property.
• Companies or Trusts: If the property is owned in these vehicles, they must declare the rental income in their tax returns.
• Joint Owners: Each owner must declare their proportional share of the rental income in their returns.

How Is Rental Income Taxed?

For individuals, rental income is added to other income sources (such as salary or business income) and taxed at the marginal personal income tax rate.

South Africa has a progressive tax system—the more you earn, the higher the rate.

Example:

• If you earn R200,000 annually from employment and R60,000 in rental income, SARS will tax you for a total of R260,000.

Allowable Deductions

You can reduce your taxable rental income by claiming certain legitimate expenses. These must be incurred to earn the rental income.

Standard allowable deductions include:

• Rates and municipal charges.
• Interest on a mortgage bond for the property.
• Insurance premiums on the property.
• Repairs and maintenance (but not improvements).
• Agent’s commission or management fees.
• Advertising for tenants.
• Levies paid to a body corporate or homeowners’ association.
• Utilities if paid by you on behalf of the tenant.

Important: You cannot claim the cost of improvements (e.g., building an extra room) as a deduction. These can only reduce Capital Gains Tax (CGT) when you sell your property.

Repairs vs. Improvements

A critical distinction in SARS rules:

• Repairs: Fixing or restoring existing items (e.g., replacing a broken window). Deductible.
• Improvements: Enhancing or adding something new (e.g., building a swimming pool). Not immediately deductible.

Interest on Bond

Only the interest portion of your bond repayment is deductible—not the capital repayment.

Your bank’s bond statement will show the interest you paid in a year.

Keeping Records

SARS requires landlords to keep proof of all income and expenses.

Good record-keeping includes:

• Lease agreements.
• Rent receipts or bank statements.
• Invoices for repairs and services.
• Municipal and levy bills.
• Bond statements.
• Agent commission invoices.

These records must generally be kept for at least five years.

What Happens if You Don’t Declare?

Failing to declare rental income is tax evasion, which can result in:

• Administrative penalties.
• Interest on unpaid tax.
• Severe fines or even criminal charges in serious cases.

SARS uses sophisticated data matching, including property records, municipal data, and bank transactions, to detect undeclared rental income.

Provisional Tax

If you earn rental income not subject to PAYE (Pay As You Earn), you may need to register for provisional tax.

• Provisional tax is not a separate tax but rather a method for paying tax on non-salary income in advance.
• You make payments in two or three instalments during the year.

Landlords with substantial rental income often fall into this category.

Capital Gains Tax (CGT) on Sale

When you sell your rental property, you may pay Capital Gains Tax on the profit.

Key points:

• Individuals are entitled to an annual exclusion on capital gains.
• Only 40% of the net gain is included in your taxable income.
• Improvements (not repairs) increase the property’s base cost and reduce CGT.

While this isn’t “rental income” tax, it’s another essential tax consideration for landlords.

Tax on Short-Term Rentals (e.g., Airbnb)

Income from short-term lets is also fully taxable.

• It must be declared just like traditional rent.
• SARS does not treat Airbnb income any differently.
• Expenses may be deductible if they directly relate to earning the income.

Best Practices for Landlords

• Always use a written lease agreement.
• Keep accurate records of income and expenses.
• Understand the difference between repairs and improvements.
• Get professional advice if needed.
• Declare all rental income annually in your tax return.

By being transparent and compliant, you avoid penalties and ensure your investment remains profitable.

FAQs

Do I have to declare rental income if I only rent out a room in my house?

Yes. Even partial rentals must be declared.

Can I deduct the full amount of my bond repayment?

No. Only the interest portion is deductible.

What if my rental property runs at a loss?

You can offset the loss against other taxable income, thereby reducing your overall tax liability.

Is deposit income taxable?

Deposits held for damages are not taxable when received. However, if forfeited (e.g., due to unpaid rent or damages), it becomes taxable income.

Do I need to register as a provisional taxpayer?

If your non-salary income (such as rent) exceeds certain thresholds, you may be required to register. Refer to the SARS guidelines or consult a tax advisor for further information.

Useful External Links

• www.sars.gov.za
• South African Revenue Service – full guidance on rental income tax.
• www.gov.za/documents/income-tax-act
• Official text of the Income Tax Act.
• www.justice.gov.za
• Department of Justice – general legal resources.