Rental income tax for landlords
One property or fifty. We prepare the rental schedules, claim what is actually deductible, track ring fenced losses, and maintain the base cost so the capital gains calculation is defensible the day you sell.
How rental income is taxed in South Africa
Rental income is included in your gross income and taxed at your marginal rate if you hold in your own name, or at the company or trust rate if you hold through an entity. It is declared on the local rental income section of your ITR12, or in the company's ITR14 where a company holds the property.
The tax is on the net figure: rental received less the expenses the Income Tax Act allows you to deduct against it. Most of the money landlords lose is lost in that second half, either by claiming things that are not deductible and losing them on verification, or by not claiming things that are.
What you can deduct
- Bond interest, but only the interest portion. The capital repayment is not deductible, and claiming the full instalment is the most common error SARS picks up.
- Rates and taxes and municipal service charges where you carry them.
- Levies on a sectional title unit, excluding any special levy that funds an improvement rather than maintenance.
- Insurance on the building. Contents insurance on your own possessions is not deductible.
- Agent commission and letting fees, and advertising to find a tenant.
- Security, garden services and cleaning where you pay for them.
- Repairs and maintenance that restore the property to its former condition.
- Accounting fees relating to the rental activity.
Repairs versus improvements, which is where it turns
A repair restores the property to the condition it was in. An improvement makes it better than it was, or extends its life. Repairs are deductible against rental income in the year incurred. Improvements are not; they are added to the base cost of the property and reduce your capital gain on eventual disposal.
Replacing a broken geyser with a similar one is a repair. Replacing the roof with a superior material is an improvement. Repainting is a repair. Adding a room, a pool or a solar installation is an improvement. Getting this wrong in the aggressive direction produces a disallowed claim with penalties. Getting it wrong in the conservative direction means you paid tax on money you did not need to, and then lost the base cost record too.
Section 20A ring fencing
Where a rental produces a loss and you are in the top tax bracket, section 20A can ring fence that loss so it may only be set off against future income from the same activity, rather than against your salary. It applies where the activity has produced losses in at least three of the last five years and meets the suspect trade tests.
Ring fenced losses do not disappear, they carry forward. But somebody has to track the balance year on year, and where nobody does, the relief quietly stops being claimed when the property eventually turns profitable.
Apportionment and part let properties
Where only part of a property is let, such as a cottage on the same erf or a room in your own home, expenses must be apportioned on a defensible basis, normally floor area. A claim with no calculation behind it does not survive a verification. We prepare and keep the apportionment schedule so the basis is on record.
Section 13sex and new residential units
Where you acquire new and unused residential units and own at least five of them for letting, section 13sex provides an annual allowance on the cost, at a higher rate for low cost units. It is a genuine and under used relief, and it requires the units to meet the conditions from the outset, so it is worth checking before you buy rather than after.
Base cost, which matters more than any single year's return
When you sell, capital gains tax is calculated on proceeds less base cost. Base cost is the purchase price plus transfer duty, conveyancing, bond registration costs and every capital improvement across the holding period, less allowances previously claimed.
The calculation is easy. Proving it fifteen years later is not, and whatever cannot be substantiated cannot be claimed, which means paying CGT on money you actually spent. We maintain the base cost schedule from the point we take you on, with the supporting documents attached, so disposal is a calculation rather than an archaeology exercise.
Scope
What you get
Rental schedules per property
Income and expenses tracked property by property, not as one blended rental line.
Correct deductions
Interest split from capital, repairs distinguished from improvements, apportionment documented.
Ring fencing tracked
Section 20A balances carried forward year on year so the relief is not lost.
Allowances checked
Section 13sex and wear and tear allowances applied where the conditions are met.
Base cost maintained
Purchase costs and every capital improvement recorded with supporting documents attached.
Returns and verifications
ITR12 or ITR14 prepared and filed, and SARS verifications answered on your behalf.
Questions
Rental income tax: common questions
What expenses can I claim against rental income in South Africa?
Bond interest (not the capital repayment), rates and taxes, levies, building insurance, municipal charges you carry, agent commission and letting fees, tenant advertising, security, garden and cleaning services, repairs that restore the property, and accounting fees relating to the letting. Improvements are not deductible against rental income; they go to base cost for capital gains.
Can I deduct my bond repayment?
Only the interest portion. The capital repayment is not deductible. Your bank statement or annual bond statement separates the two, and claiming the full instalment is the single most common error SARS identifies on rental returns.
What is the difference between a repair and an improvement?
A repair restores the property to its former condition and is deductible in the year incurred. An improvement makes the property better than it was or extends its life, and is added to the base cost for capital gains tax instead. Replacing a broken geyser is a repair. Adding a room is an improvement.
What is section 20A ring fencing?
A provision that can ring fence a rental loss so it is only set off against future income from the same activity, rather than against your salary. It applies to taxpayers in the top bracket where the activity has produced losses in at least three of the last five years. The losses carry forward, but only if someone tracks the balance.
Do I pay tax if my rental makes a loss?
No tax is payable on a loss, and the loss may reduce your other taxable income unless it is ring fenced under section 20A. Either way the rental must still be declared. Not declaring a loss making rental removes your ability to use the loss later and creates a non disclosure problem.
How is capital gains tax worked out when I sell?
Proceeds less base cost gives the gain, which is then included in taxable income at the inclusion rate for your entity type. Base cost is the purchase price plus transfer duty, conveyancing and bond registration costs plus capital improvements over the holding period. The practical difficulty is proving it years later, which is why we maintain the schedule as we go.
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