It is that time of year again where all income from property investments must be declared to SARS and is subject to income tax, this includes all rental income. In preparation for tax season, taxpayers can start gathering all the supporting documents that are needed to submit their tax returns. The first important point to note when reviewing the income tax implications of residential properties is the difference between; the income tax of primary residences and buy to let residential properties:
Primary residences are occupied by the owner of the property and there is therefore no taxable income that is generated from the ownership of the property. All the costs that are incurred in relation to the property are therefore of a personal nature and cannot be deducted for income tax purposes.
Rental properties are leased by a tenant and the owner of the property (the lessor) receives a monthly rental income in return for leasing the property. The rent income must be included in the taxable income of the property owner regardless of whether the property owner is an individual, corporate entity or a trust. All the costs that are incurred in order to generate a monthly rental income can be deducted from the income that the property owner receives when calculating the owner's taxable income for tax assessment purposes. Rental of residential accommodation includes:
· holiday homes
· bed-and-breakfast establishments
· sub-renting part of your house e.g. a room or a garden flat
· dwelling houses and
· other similar residential dwellings
"The important factor with owning an investment property is that all expenses are deductible from the rental income, before tax is calculated. These Costs typically include property management fees, municipal rates, levies charged by body corporates, repairs and maintenance, insurance premiums and municipal service costs that are paid by the property owner. Proper accounting records therefore need to be kept in order to provide SARS with supporting documents for the deductions that are claimed for income tax purposes if required to do so”, says Craig Hutchison, CEO Engel & Völkers Southern Africa.