According to Antonie Goosen, principal and founder of Meridian Realty, the first step is understanding which expenses can be deducted from rental income.
"If you own a rental property, SARS allows you to deduct costs like bond interest, municipal rates, levies, insurance, repairs, and even property management fees. This can significantly reduce your taxable income," says Goosen.
He adds that wear-and-tear allowances also apply to movable assets within the rental property, such as appliances and furniture. "These can be depreciated over time, further reducing your tax liability."
He advises keeping detailed records of all expenses and working with a tax practitioner to ensure compliance. "You don’t want to miss out on allowable deductions simply because of poor paperwork."
For investors who buy in a company or trust structure, additional tax planning opportunities may be available, though these also come with added complexity. "It’s vital to seek professional advice to understand the pros and cons of different ownership structures."
Capital gains tax (CGT) is another consideration. "When you sell an investment property, you’ll pay CGT on the profit. But knowing the exemptions, thresholds, and how to calculate the base cost can help reduce the impact."
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He notes that properties held for long periods tend to offer better CGT outcomes, especially when paired with reinvestment strategies. "Investors should always factor tax into their long-term return calculations."
Goosen also highlights Section 13sex of the Income Tax Act, which provides a special allowance for residential units purchased for rental. "If you own five or more new residential rental units, you may claim a depreciation allowance of up to 5% per year. Few investors are aware of this incentive."
He encourages new and small-scale investors to educate themselves. "Even if you only own one rental unit, the tax advantages can be meaningful. It’s all about managing the investment professionally."
Finally, he reminds investors to register for tax as landlords with SARS and to declare all rental income. "Trying to hide income is short-sighted. Not only is it illegal, but it also limits your ability to access finance and build a legitimate investment portfolio."
"Property investment can be tax-efficient if done correctly. Don’t treat it casually, surround yourself with professionals, keep your documents in order, and think long-term," says Goosen.
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Tarryn Gravenor, attorney and conveyancer at Herold Gie Attorneys shares the basic principles relating to CGT on the disposal of immovable property:
Definition of Capital Gain
A capital gain arises when an asset is sold for more than its base cost. For immovable property, the base cost typically includes the purchase price, any costs incurred to improve such immovable property, and certain costs incurred when selling such property.
Calculation of Capital Gains
To calculate CGT on the disposal of immovable property, follow these steps:
Determine the proceeds from the sale: This is the selling price of the property;
Calculate the base cost: This includes the original purchase price, the cost of any improvements made to the property, and costs related to the acquisition and disposal of the property (e.g., legal costs, estate agent’s commission, conveyancing [transfer] costs, including Transfer Duty paid to SARS upon acquisition of the property);
Calculate the capital gain: Subtract the base cost from the proceeds.
Exemptions and Rebates
Primary Residence Exemption:
If the property being sold is your primary residence, capital gains up to a certain threshold (currently R2 million) may be exempt from CGT.
Annual Exemption:
Each individual is entitled to an annual exclusion on capital gains (currently R40,000.00). This means the first R40,000.00 (or R300,000.00 in the year of death) of the total capital gain in a tax year is not subject to CGT.
Tax Rates
Individuals are taxed on 40% of the net capital gain, which is included in their taxable income and taxed at their marginal income tax rate. This means that the maximum effective tax rate on capital gains for individuals is 18% (40% x 45%).
For companies, the effective tax rate of capital gains is currently 21,6% (80% x 27%), while for trusts (other than special trusts), the effective tax rate of capital gains is currently 36% (80% x 45%).
Time of Disposal
CGT is triggered upon the disposal of the asset, and the underlying events which qualify as the basis for the trigger include a sale, donation, exchange, loss, death, and emigration.
Record Keeping
As with tax affairs in general, it is important to maintain comprehensive records of your property transaction, including purchase and sale agreements, invoices for improvements, and any related expenses, and the final account that you receive from the Conveyancing Attorney who handled the transfer of the property into your name, as these will help substantiate the capital gains calculation when submitting your tax return or applying to SARS for a Directive as to CGT, as the case may be.
If in doubt be sure to seek professional advice and assistance from a suitably qualified Attorney conversant with Property Law and tax matters and your Tax Advisor.
