Whether you rent out an entire property or opt for short-term subletting, all rental income must be declared to SARS and is subject to taxation. This can apply regardless of the source of your primary income – both those who solely rely on rents as well as individuals supplementing a salary are obligated by law to declare their earnings from rentals.
It’s also worth knowing that if your taxable profit on your rental income (rent less expenses) is more than R 30 000 a year, this could mean that you may have to register as a Provisional Taxpayer and pay tax twice a year via the provisional tax system.
Rental of residential accommodation includes all the below:
- holiday homes
- sub-renting part of your house e.g., a room or a garden flat
- residential dwellings
How is tax calculated on rental income?
It’s important to report all rental income along with your other earned revenue when paying taxes. Don’t forget—including extra sources of capital can make a big difference in terms of owed obligations!
Property owners are subject to taxation on their rental income, as well any additional payments received over the monthly rent. This could take shape in a lease premium – an up-front sum paid by tenants for signing tenancy agreements – and it must be declared annually regardless of when payment is made or accumulated.
Once a tenant’s tenancy ends, the rental deposit they made is generally given back to them rather than kept by the property owner. Therefore, such deposits are not classified as taxable income and do not need to be declared in their tax returns. However, if any of these funds were used for reparations or other costs associated with renting out your property then they would become subject to taxation.
Tax Deductions for your Rental
As a rental property owner, you’re able to reduce your taxable income with the expenses incurred for renting out. This doesn’t include any capital and/or non-business-related costs – these cannot be utilized as deductions according to SARS regulations. However, qualifying purchases of assets at over R7 000 have wear and tear deduction potential; our calculator can help find out if this applies in your situation!
Property rental is a great way to become an entrepreneur, giving you the opportunity of operating your own small business. To ensure smooth reporting and filing come tax time, make sure that all earnings and costs related to renting out any type of property – be it residential or vacation – are noted in Local Rental Income on your return form.
Not sure which expenses you can claim while renting out your property?
Monthly costs you can claim:
- Rates & taxes
- Levies to the local municipality
- AirBnB agent’s & rental agent fees
- Accountant’s fee
Other costs you can claim:
- bond interest (SARS allows only the interest to be deducted against the rental income, not the larger bond/mortgage/capital repayment)
- advertising costs
- insurance (this is for the property itself, not household contents)
- garden services
- security and property levies
- wear and tear on furniture
- repairs and maintenance
While home improvements and renovations grow the value of your property, repairs are a different story. To be sure you stay within tax code boundaries, remember that necessary repairs serve to restore an item to its original condition – from small fixes like mending a broken window seal or replacing door hinges, all the way up to larger projects such as fixing plumbing issues or redoing roofing.
Want another great way of reducing tax on your rental income?
Take advantage of SARS’ depreciation regulations; reduce your rental income tax by accounting for the furniture in your property. Not only will it improve future expenses, but you’ll be able to claim a percentage deduction on items such as beds and couches that would need replacing eventually – helping to minimize those inevitable costs! Doing so is simple: just declare ‘depreciation’ under the Local Rental Income section when filing taxes – easy peasy!
Note that as a rule of thumb, assets with a purchase price higher than R 7 000 are capitalised and depreciated over several years, while individual items costing less than R 7 000 are written-off /expensed in the year they’re purchased.
Which expenses are “not” allowed?
Home improvements are a great way to invest in your property’s future. Investing now can increase the earning potential and value of your home later down the line, by adding new features that were not there before or enhancing existing ones. Make sure you choose wisely: with an intention towards both short-term quality living and long-term financial gain!
Home improvements can be considered as more extensive and expensive than repairs. Some examples of home improvements include:
- Installing an air conditioning system
- Renovating a kitchen
- Installing a security system
- Installing a swimming pool
- Renovating a bathroom
- Adding a deck
- Adding or extending the property
When you decide to sell your property, don’t forget that holding onto receipts of all the costs involved with acquiring and maintaining it can be a great way to reduce Capital Gains Tax! These expenses add up over time, so ensure they’re accounted for. This could make a big difference when filing taxes at the end of every financial year – trust us, SARS will thank you too!
When it comes to VAT expense claims, the supply of a “dwelling” is an exempt supply for VAT purposes, and you can’t deduct VAT incurred on these expenses.
How do I deduct rental expenses?
When less than 100% of your property is being rented out, then you may only deduct a portion of your rental related expenses. This portion (i.e., percentage) is calculated by dividing the floor area of the space being rented, by the total floor area of the property (including garages and out buildings).
Here’s an example:
You have a 500 square metre, three-bedroom home which also has a separate flatlet which you rent out on AirBnB for 250 days of the tax year. You will then take the total square meterage of the flatlet (let’s say this is 180 square metres) and divide that by the total of the house (include garage and outbuildings) to get the percentage.
Square meterage of flatlet/ total square meterage of property x 100
180 / 500 x 100 = 36%
What if the expenses exceed the rental income?
If your expenses exceed the income you make through rentals, this loss can be counterbalanced with other sources of earnings. However, SARS has certain anti-avoidance provisions in place that might prohibit such an action. “Ring-fencing” refers to these rules which dictate that rental losses cannot be used to offset salary incomes from the same tax year and will instead have to weathered until subsequent taxation periods when it can then mitigate any profits made on rented units. Homeowners must be able to satisfy SARS that they are carrying on a real trade by renting out their property.
What if I’m renting out more than one property?
If you have multiple rental properties, remember to individually declare each one’s income and expenses when filing with SARS. Don’t forget that combining all your assets is not the way to go; always make sure each property’s financial data stands on its own!
What if one of my rental properties makes a profit and the other makes a loss?
Despite the potential for losses to be offset against profits, SARS requires that each property you own is declared separately – ensuring complete accuracy and fairness on your tax obligations.
What happens if my tenant won’t pay me the rent, they owe me? Do I still tell SARS?
If your tenant has not paid you the rent money that is due to you, you have two options:
- Include the rental income that you should have received during the tax year in your tax return; also declare the portion not received as bad debts in the expenses section or,
- Only declare the rental income that you received and exclude the rental income that you did not receive; do not claim the bad debts in the expenses section. (Bad debts can only be claimed if the income that should have been received is included in your gross rental income).
What if I own the property with someone else, how do I declare the rental income and expenses?
If you own the property with a husband, wife, friend or business partner, and you each own a % of it, then you would need to either:
- use that percentage and apply it to the incomes and expenses included in your tax return so that you only declare your % share of the rental income and expenses or,
- indicate that you’re part of a partnership, and then provide the partnership details in your tax return (i.e. that x person owns x% of the property and you own the other x%). You then need to declare 100% of the rental income and expenses and SARS will allocate your share of the rental income and expenses based on the partnership % you indicated.
Can I deduct my own expenses from my rental income?
You, unfortunately, can’t claim a deduction for your personal expenses against your rental income.
Can I deduct my bond instalment from my rental income?
You can only claim the interest portion of the bond instalment. The full bond instalment cannot be deducted because a portion of the payment is towards paying of the capital portion of the loan.
I pay the gardener that works at my rental property, can I claim it?
Yes, you can claim this expense against your rental income.
Can I claim a deduction for the costs I paid the agent to find a tenant for my rental property?
Yes, you can claim a deduction, as long as you have proof of this transaction.