Is rental income taxable in South Africa?
Is rental income taxable in South Africa? Rental income arises when one rents out a portion of their home or when they entirely rent out their property (residential accommodation) and they receive rental income for this property or portion of it. Rental income can include: Holiday homes Air BnB Bed and breakfast establishments Guesthouses Renting a section of your home Other similar residential dwellings where you receive rent How is the tax calculated on rental income? The rental income and any other amounts paid to you for rental or residential accommodation must be added to your other income on your tax return. These amounts will be subject to normal tax at the normal individuals’ tax rates applicable for the applicable tax year. These amounts can include: Lease premiums paid to you monthly Lease premium lump sum paid at the beginning of the lease and covering the applicable tax year/period. This must not be confused with a rental deposit. The receipt of a rental deposit does not need to be included in a taxpayer’s gross income at the stage the initial deposit is paid. This is so specifically if there is an expectation for the lessor to pay the deposit back at some stage. The deposit will only become part of the gross income (taxable income) if the landlord applies the deposit. For example, the tenant moves out having damaged the property and the landlord applies the deposit to pay for the repairs. Can the rental income be reduced? Yes, the rental income can be reduced by allowable deductions (expenses) for the period that the property was let. Which expenses can you apply to reduce the rental income? Permissible expenses incurred in the production of that rental income can be claimed against that rental income. No private expenses can be claimed against the rental income. The following expenses can be applied against the rental income: rates and taxes bond interest advertisements agency fees of estate agents insurance (only homeowner’s insurance and not insurance for household contents) garden services repairs in respect of the area let and security and property levies What if I am not renting out 100% of the property? You will need to apportion the costs of running your property concerning the space applied for the rental income. You may need to measure the space rented out versus space not rented out. For example, if your entire house is 500 square metres but you only rent out 300 square metres, then the apportionment ratio will be 60% applied to the property running expenses. This means you can only claim 60% of the expenses. Which expenses cannot be claimed? Any expenses of a capital nature cannot be claimed against the rental income. This calls for a distinction between repairs and improvements. Repairs are such expenses that restore something to its original condition whereas an improvement usually results in the creation of a better asset. While improvements cannot be claimed against rental income, they form part of the base cost of the property, which effectively reduces the capital gain on the property when the property is sold. Do not hesitate to contact us if you have questions or require a quote. Leave a message Subscribe now:
When can I submit my SARS tax return?
When can I submit my tax return? Tax evasion is a crime which can see you spend a few of your days in prison. We are talking about a possible 5 years in prison. That is quite serious! When does the 2020 tax season begin? Due to Covid-19, the tax season will be shorter than normal. Normally, the tax season starts around June. This year, SARS announced that the tax season will open on 1 September 2020. This is for taxpayers who would have not been auto-assessed by SARS. For taxpayers who would have been selected for auto-assessment, the tax season starts 1 August 2020. What is auto-assessment? This will be an automatically generated (computer-generated assessment, without any input from the taxpayer) and will be based on the information that SARS would have received from third parties. This third-party information will include information from employers in the form of IRP5s, information from financial institutions, medical aid certificates, retirement annuity, interest and dividends certificates. SARS will select the taxpayers that will be auto-assessed. They have not said how they will do this, but one would assume that it is a risk-based selection process. We would expect basis, non-complex returns to be selected for this process. What happens after you are selected for auto-assessment? SARS will send you a message from 1 August 2020 saying that you have been selected for auto-assessment. You will then be given a chance to accept or decline this assessment. Accepting it means you agree with the return that SARS has prepared for you. It says you are happy that your taxes return is complete and accurate. By complete and accurate, you accept that your return includes all income that accrued to you in the year and that SARS has taken into account all allowable deductions. Will this be the case though? Should you accept the auto-assessment? Our view is that you should not accept the auto-assessment because of the risks involved. You may end up paying more taxes than you should pay. You may also end up paying less tax than you should pay. Why would this be so? SARS may not be aware of any additional income that may have accrued to you in the year but that you should be declaring on your tax return. Because of COVID-19, SARS may not have received all third party information. In other other words, SARS may not have received all your tax certificates from third parties. Auto-assessment may not (may fail to pick up all your genuine deductions)include genuine deductions that are due to you. These may include: Home office expenses that came up as a result of your working from home during the lockdown. Donations where you have received valid Section 18A certificates. Other deductions such as wear and tear, and travel expenses. SARS may miss and not include additional income from a trade you started in the tax year. You may face penalties and interest later if SARS later discovers that you understated your income on your tax return. Qualifying out-of-pocket medical expenses may also be missed that you should take into account on your tax return. What should you look out for before accepting or rejecting the auto-assessment? First, you need to ask yourself if you have received all the relevant and necessary tax information from all third parties. If you are satisfied that you have received all the required documents, you will next need to check the assessment versus what you have received. Check that they have included all your IRP5s, your retirement annuities, medical aid, interest and dividends certificates, capital gains and any other third party certificates. If you do not have these documents in your personal data room, contact your employer or financial institutions and ask them to send you these documents. What happens if you reject the auto-assessment? If you accept the assessment, you will not have to file a tax return at all. But, if you do not accept the auto-assessment from SARS, you will be required to file as you normally do. This can be done by filing a correction. The submission can be done on eFiling, at a SARS branch or via the SARS eFiling App. You can do this from 1 September 2020. Leave a message Subscribe now: