What is rental income?
If an individual rents out a property (generally residential accommodation) such as holiday homes, guesthouses, garden flats or dwelling houses and receives rental income, the amount received will be subject to income tax.
How is tax calculated on rental income?
The rental income you receive should be added to any other income you may have, but will also be reduced by certain permissible expenses incurred.
Can the rental income be reduced?
Yes, the rental income may be reduced by any permissible expenses incurred during the period that the property was let. Only expenses incurred in the production of that rental income can be claimed. Any capital and/or private expenses won’t be allowed as a deduction.
Expenses that may be deducted from rental income could include:
- ZRates and taxes
- ZBond interest
- ZAdvertisements
- ZAgency fees of estate agents
- ZInsurance*
- ZGarden services
- ZRepairs in respect of the area let and
- ZSecurity and property levies
* (only homeowner’s insurance and not insurance for household contents or bond insurance)
Non-Deductible Expenses:
Only expenses relating to the rental of the property may be deducted for tax purposes. This means that SARS will not consider outlay on capital and private items as deductible expenses.
Although maintenance and repairs expenses may be deducted from the rental income, the cost of improvements are considered capital expenses. They will be added to the value of the property.
If you sell the rental property, however, the improvement costs will be seen as an expense that will lower your capital gain on the property. This will reduce the capital gains tax (CGT) payable to SARS on the sale of the property.
What if the expenses exceed the rental income?
The individual must effectively be able to satisfy SARS that he or she is carrying on a bona fide trade through the rental of his or her property.
Trying to figure out tax deductibles can be a difficult and overwhelming task. If you’re ever unsure about your tax return, it’s best to consult with a professional financial adviser or tax consultant who can guide you through the process. Contact us on www.bevolve.co.za to assist.