Let’s talk about something that’s on every landlord’s mind in South Africa: taxes on rental income.
Yes, it’s not the most exciting topic, but it’s critical.
If you’re earning rental income, the taxman wants his cut.
And if you don’t play by the rules?
Expect penalties or even legal trouble.
But don’t stress = this guide breaks it all down for you.
We’ll cover what you’re taxed on, what you can deduct, and how to stay on SARS’s good side.
Why Taxes on Rental Income Matter
Earning rental income in South Africa means you’re in SARS’s sights.
Every cent you earn from letting out property is taxable.
But there’s a silver lining:
You can reduce your tax bill by claiming legitimate deductions.
For example:
- Repairs and maintenance? Deductible.
- Depreciation on appliances? Deductible.
- Interest on a bond? Yep, also deductible.
But knowing what you can claim – and what you can’t – is where many landlords get tripped up.
How Rental Income is Taxed
Your rental income is treated like any other income.
It’s added to your salary or business income and taxed according to your tax bracket.
Here’s a Quick Look at 2023/2024 Tax Brackets:
| Income Range (Rands) | Tax Rate |
|---|---|
| 1 – 237,100 | 18% |
| 237,101 – 370,500 | 26% |
| 370,501 – 512,800 | 31% |
| Above 1,817,000 | 45% |
So, if you earn R200,000 in rental income and R400,000 from your job, your total income is R600,000.
You’ll pay tax at the rate that applies to your bracket.
Common Deductions for Landlords
Here’s the good part: SARS allows you to claim many expenses against your rental income.
This reduces your taxable amount.
Deductible Expenses:
- Repairs and Maintenance:
- Fixing a leaking roof or repairing a broken geyser? Fully deductible.
- Renovating the kitchen? Not deductible – this is considered a capital expense.
- Interest on a Home Loan:
- If you’ve taken out a bond for the property, the interest portion of your monthly repayment is deductible.
- Rates and Levies:
- Municipal rates, property taxes, and body corporate levies count.
- Utilities Paid by You:
- Water and electricity bills fall into this category.
- Depreciation on Assets:
- If you’ve bought appliances or furniture for the rental, you can depreciate their cost over several years.
Pro Tip:
Always keep your invoices and receipts. SARS loves documentation.
Capital Gains Tax: When You Sell
When you sell your rental property, you’ll likely make a profit.
This is where Capital Gains Tax (CGT) comes into play.
Here’s how CGT works:
- Calculate the selling price minus the original purchase price.
- Apply the 40% inclusion rate for individuals.
- Pay tax on the result according to your income tax rate.
Example:
- Selling price: R2,000,000
- Purchase price: R1,500,000
- Capital gain: R500,000
40% of R500,000 = R200,000.
Add this to your other income and pay tax accordingly.
Section 13sex: The Big Incentive
South Africa offers a major tax incentive for residential property investors under Section 13sex of the Income Tax Act.
How It Works:
- You can deduct 5% of the purchase price of new residential units each year.
- This applies to properties bought or built for rental purposes.
For example:
If you buy a property for R1 million, you can deduct R50,000 annually.
That’s a significant saving!
But there’s a catch – this only applies to new properties.
Provisional Tax: Paying in Advance
If you’re earning significant rental income, SARS may require you to register as a provisional taxpayer.
What This Means:
- You’ll pay your estimated tax in two instalments:
- August
- February
This ensures you don’t get hit with a massive tax bill at the end of the year.
The Risks of Non-Compliance
Let’s be clear: SARS takes rental income seriously.
If you don’t declare your income, you could face:
- Administrative penalties: For errors or omissions.
- Criminal charges: For deliberate evasion.
SARS’s Tools for Catching Landlords:
- Data analytics: They cross-check your tax return with property deeds.
- Tenant reporting: SARS can audit tenants to verify payments.
If you’ve been non-compliant, consider the Voluntary Disclosure Programme (VDP).
This allows you to come clean and avoid harsh penalties.
FAQs
1. What happens if I don’t declare my rental income?
SARS can impose penalties and interest. They may even prosecute for tax evasion.
2. Can I deduct renovations from my income?
No. Renovations are capital expenses, but you can claim them when calculating Capital Gains Tax.
3. Do I need a tax practitioner to handle my rental income?
It’s not required, but it’s highly recommended. ThriveCFO can help you optimise deductions and avoid mistakes.
4. Are Airbnb earnings also taxable?
Yes. Income from short-term rentals is treated the same as any other rental income (Airbnb taxes)
Final Thoughts
Understanding taxes on rental income isn’t just about compliance – it’s about keeping more of what you earn.
By claiming the right deductions, planning for Capital Gains Tax, and staying on SARS’s good side, you can turn your rental property into a solid investment without unnecessary headaches.
Remember, every rand counts.
Keep it legal, keep it smart.
