Tax Season - Make property work for you

It is that time of the year again, the start of a new tax season and time to start getting your documents together and also planning for the next financial year. To most of us, this topic is somewhat confusing; completely intimidating and downright not interesting at all … but did you know about all the benefits there are for owning a property and how greatly it could influence your tax deductions in a positive way?
Unfortunately paying a bond on one property, proclaiming it to be your main residence and not owning any other property or earning any additional income from your home, means that you will not necessarily benefit from any tax exemption or cash flow gains from personal income tax claiming every year end. While still inhabiting and paying off the bond, there is nothing much to get excited about until you decide to upgrade or downgrade your permanent residence by means of selling. 
If the property is registered in an individual's name, it will be liable for Capital Gains Tax (CGT). A capital gain arises when you dispose of an asset. Craig Hutchison, CEO of Engel & Völkers Southern Africa explains that the first R2 million is exempt from CGT if it is the owner's primary residence, and if the property is registered to an individual.
The benefit of owning a property in a personal capacity is that the income tax paid when selling for a profit on the holding, might be lower (as little as 33.3% on the non exempt portion) than the tax paid if the property is owned in a company or trust's name. There is no minimum period that a person must live in a residence to claim it as a primary residence. However, the taxpayer must be able to convince SARS that the residence is his or her ordinary residence. A word of warning: A taxpayer who buys and sells properties at short intervals runs the risk of being classified as a property trader in which case any profits on disposal will be taxed in full as revenue gains.
“When a decision is made to buy a property as a buy-to-let-investment, it is important to consider and plan what sort of strategy you, as the property owner, have in owning the property and then choose whether to own it outright or to register it in the name of a company or a trust” Craig advised. All income must be declared to SARS, therefore the total rental you receive must be included on your annual tax return. If SARS finds out about additional income, by means other than a declaration by the taxpayer, it will lead to additional penalties over and above the normal tax payable. Examples of these include receiving income from holiday homes, bed-and-breakfast, establishments, guesthouses, sub-renting part of your house e.g. a room or a garden flat and dwellings on one's property.
The rental income you get should be added to any other taxable income you may receive be it a salary, consultancy fee or commissions earned by any trade. Any amount paid to you in addition to the monthly rental is also part of your income tax. These additional amounts or lease premiums are usually paid in the form of lump sums at the start of the lease and the full amount is subject to tax in the year that it accrues. A refundable deposit paid by a tenant is not taxable provided it is kept separately in a trust account or any other separate account to your personal account and is not used by you, but if it is not paid back to the tenant for any reason what so ever, it will be taxable, since its then seen as an additional income.
The taxable amount (rental income) may be reduced as you may have expenses during the period that the property is being rented out. Only expenses that occurred in the rental period can be claimed. Any capital and/or private expenses won't be allowed as a deduction. Expenses that may be deducted from taxable property income include rates and taxes, bond interest, advertisements, agency fees of estate agents, insurance (only homeowners not household contents), garden services, repairs, security and property levies. Maintenance and repairs should be noted as specific costs and should not be confused with improvement costs. Should the expenses exceed the rental income, the loss should be available to be written off against other income earned by the homeowner.
“When compiling your tax return for 2015, perhaps consider contacting one of our Sales Advisors to look into investment property for the coming year. Before buying your second home ensure you are assured of maximising your money's potential and having an additional income generating property, will remain a great asset as well as a long term investment.  Be clear on what your objective and budget is, and be involved with the management of the whole rental process. Nobody else will look after your money as you do.” advises Craig.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 19 Feb 2018
      Possibly one of the biggest sources of contention between landlords and tenants surrounds the rental deposit. “Most tenants rely on getting their rental deposits back when moving, so that they can use it to pay a deposit on their new home. Having it withheld or even having large amounts deducted can lead to a lot of distress,” explains Bruce Swain, CEO of Leapfrog Property Group.
    • 19 Feb 2018
      Situated approximately halfway between Johannesburg and Pretoria, Midrand was established in 1981 and forms part of the City of Johannesburg Metropolitan Municipality. It has become one of the major business hubs in the country with major pharmaceutical, textile, telecommunication and motoring giants situated within its boundaries.
    • 19 Feb 2018
      The PayProp Rental Index Annual Review of 2017 shows that the rental market suffered from much volatility during the year. It kicked off with rental growth spiking in January with weighted year-on-year growth (YoY) growth peaking at 8.3% before dropping to 6.34% in July, dipping down to less than 5% in November and then experiencing a slight uptick at 5.75% in December.
    • 19 Feb 2018
      While most homes in cluster complexes, estates and other gated communities come with at least one garage or carport, residents would often like additional permanent parking or storage areas for things like trailers, bikes, boats and caravans.
    • 16 Feb 2018
      Whether you own a property in a sectional title complex or are looking to invest in one, the financial standing of the body corporate is the single most important thing that can affect your investment or your buying decision.
    • 15 Feb 2018
      One positive consequence of the financial crash in 2008 was the rise in consumerism, especially in the property market, where buyers have steadily become more knowledgeable and more value conscious.
    • 15 Feb 2018
      While most homeowners will take the agent’s commission into consideration when they are trying to determine what the will get out from the sale of their property, many often forget to factor in the other costs involved in a home sale, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      The forecast for the national rental market in 2018 remains a mixed bag of good news and bad news. Although rentals are expected to rise slowly as the challenges of home affordability and tighter lending criteria tighten their grip, it’s a double-edged sword as the market also will come under increasing pressure from factors like declining disposable income levels.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us