If you own a rental property in South Africa, you might have heard about provisional tax.
But let’s be real: tax rules can get confusing, and you’re probably wondering:
- What is provisional tax?
- Do I have to pay it as a landlord?
- How do I calculate it and meet the deadlines without penalties?
In this guide, I’ll explain how provisional tax for landlords works in South Africa in plain, everyday English.
By the end, you’ll understand what it is, how to stay compliant, and how to avoid penalties that could hurt your pocket.
Let’s get started.
What is Provisional Tax and Why Does It Matter?
Provisional tax is a way for the South African Revenue Service (SARS) to collect taxes in advance from people who earn income outside of a regular salary.
If you’re a landlord earning rental income, you likely fall into this category.
Here’s why it exists:
- It spreads your tax payments over the year, so you don’t have to pay a big lump sum at year-end.
- It helps SARS collect taxes regularly instead of waiting until tax season.
For rental property owners, provisional tax is particularly important because it helps manage cash flow and ensures you stay compliant with SARS regulations.
Who Needs to Pay Provisional Tax?
Not everyone is required to pay provisional tax.
You need to pay provisional tax if:
- You earn income other than a salary, like rental income, freelance income, or investments.
- Your taxable income exceeds the annual threshold (R95,750 for people under 65 in 2024).
- Your rental income and other taxable income exceed R30,000 annually.
Who is Exempt?
You don’t need to pay provisional tax if:
- Your income comes only from a salary, and PAYE (Pay As You Earn) already covers it.
- Your total taxable income is below the threshold.
- You earn rental income but don’t meet the R30,000 threshold.
How to Calculate Provisional Tax on Rental Income
Here’s how it works:
Provisional tax is calculated based on your estimated taxable income for the year.
For landlords, this includes:
- Rental income from tenants.
- Deductions for expenses like maintenance, rates, levies, and bond interest (Private Property).
To calculate provisional tax:
- Estimate your taxable income. Add up your total rental income and subtract allowable expenses.
- Use the SARS tax tables to determine how much tax you owe for the year.
- Split this amount into two payments:
- First payment (August 31).
- Second payment (February 28/29).
Here’s a simple example:
| Details | Amount (R) |
|---|---|
| Total Annual Rental Income | 120,000 |
| Expenses (maintenance, etc.) | 30,000 |
| Taxable Income | 90,000 |
| Estimated Tax (per SARS) | 15,000 |
| First Payment (50%) | 7,500 |
| Second Payment (50%) | 7,500 |
If your rental property makes R10,000 a month and you spend R2,500 on expenses, your taxable income is R90,000.
The total tax is split into two payments of R7,500 each.
Key Provisional Tax Deadlines
Missing a deadline can lead to penalties, so mark these dates on your calendar:
- First Payment: August 31 – This is halfway through the tax year.
- Second Payment: February 28/29 – The end of the tax year.
- Optional Third Payment: September 30 – To correct any underpayments.
Penalties for Late Payments
If you miss the deadlines:
- SARS charges a 10% penalty on the amount you owe.
- Interest accrues daily until you settle the outstanding tax.
To avoid this, stay on top of your payments and set reminders.
Filing Your Provisional Tax Returns
Here’s what you need when submitting your provisional tax return:
- Rental Income Records: Proof of rent collected during the year.
- Expense Records: Invoices, receipts, and statements for expenses like maintenance, rates, and bond interest.
- Previous Assessments: Reference last year’s tax assessments to estimate your current income accurately.
- SARS eFiling Credentials: Submit your return online through the SARS eFiling platform.
Pro Tip: Use Technology
Consider using accounting software like Xero, QuickBooks, or Sage to track your rental income and expenses.
It makes calculating provisional tax easier and keeps your records tidy for SARS audits.
Tips to Stay on Top of Provisional Tax
If you want to avoid penalties and manage your rental tax smoothly, follow these tips:
- Keep Accurate Records: Track all rental income and expenses meticulously.
- Estimate Realistically: Don’t underestimate your income to avoid SARS penalties.
- Pay on Time: Meet the August and February deadlines without fail.
- Use Professional Help: Hire a tax consultant or accountant to handle calculations and filings.
- Stay Informed: Tax laws change, so keep up to date with SARS updates.
Case Study: Single Rental Property Owner
Let’s look at an example to make this real:
John owns one rental property that earns him R10,000 a month.
He spends about R2,500 monthly on expenses like rates, levies, and bond interest.
John’s provisional tax looks like this:
- Annual Rental Income: R120,000
- Total Expenses: R30,000
- Taxable Income: R90,000
Using SARS tax tables, John’s annual tax is about R15,000.
- First Payment (August): R7,500
- Second Payment (February): R7,500
By spreading the tax payments, John avoids a lump sum payment at year-end and stays compliant with SARS.
FAQs About Provisional Tax for Landlords
Who qualifies for provisional tax?
In South Africa, a provisional taxpayer is any person who receives income other than remuneration, such as rental income from property. This includes landlords earning rental income. However, if your taxable income is below the annual tax threshold (R95,750 for individuals under 65 for the 2024 tax year) or if your taxable income from interest, dividends, and rental income is less than R30,000 per year, you may be exempt from registering as a provisional taxpayer.
How to avoid tax on property rental income in South Africa?
While it’s not possible to completely avoid tax on rental income, landlords can reduce their taxable income by deducting allowable expenses related to the rental property. These expenses include:
- Repairs and maintenance: Costs incurred for repairing and maintaining the property, such as painting, plumbing, and electrical repairs.
- Rates and taxes: Municipal rates, property taxes, and levies paid on the rental property.
- Insurance premiums: Premiums paid for insurance policies covering the rental property, such as building insurance or landlord insurance.
- Property management fees: Fees paid to property management companies for their services.
- Interest on your loan: The interest portion of your loan repayments for the rental property is deductible.
By accurately deducting these expenses, you can reduce your taxable rental income. It’s essential to keep detailed records and receipts to substantiate these deductions.
How to calculate your provisional tax?
To calculate your provisional tax:
- Estimate Taxable Income: Determine your total rental income and subtract allowable expenses to arrive at your estimated taxable income.
- Determine Tax Liability: Apply the applicable tax rates to your estimated taxable income to calculate the tax due.
- Allocate Payments: Divide the annual tax liability into two payments:
- First Payment: Due within six months of the start of the tax year (e.g., by August 31st for individuals), covering the first half of the tax year.
- Second Payment: Due by the end of the tax year (e.g., by February 28th), covering the second half of the tax year.
It’s important to note that if your taxable income is expected to exceed R1 million, your second provisional tax payment estimate must be within 80% of your actual taxable income to avoid penalties.
What is the 80% rule for provisional tax?
The 80% rule applies to provisional taxpayers whose taxable income exceeds R1 million. For these taxpayers, the South African Revenue Service (SARS) requires that the estimated taxable income declared in the second provisional tax return be at least 80% of the actual taxable income for the year. If the estimate falls below this threshold, a penalty of 20% may be imposed on the difference between the estimated tax and the tax calculated on 80% of the actual taxable income.
Final Thoughts
Understanding how provisional tax for landlords works in South Africa is key to staying compliant and avoiding penalties.
As a landlord, the system helps you spread your tax payments, making it easier to manage your cash flow.
Just remember:
- Estimate your taxable income realistically.
- Pay on time (August and February deadlines).
- Keep proper records of all income and expenses.
If you need help, consult our tax professionals to guide you.
By following these steps, you’ll meet SARS requirements and stay in control of your rental income taxes.
