Many property owners are still unaware that they should declare their rental income to The South African Revenue Services (SARS). If a property owner rents out his/her property and receives a rental income, it will be subject to being taxed. Whether the owner is renting out a secondary house, guesthouse, holiday home, garden flat or even just a room in his house, the income is taxable. The rental income (excluding the refundable deposit) should be added to any other taxable income the landlord may have at the end of the year during tax filing season. In instances where the tenant forfeits his deposit, the latter will have to be included in the income tax table.
Fortunately, the taxable amount may be reduced as the landlord incurs expenses during the period the property was let. Some of the expenses include rates and taxes, bond interest, garden service, repairs, levies, estate agency advertisement fees, fixing of broken fixtures and the painting of the exterior property boundary walls. The maintenance and repairs should be noted as specific costs and should not be confused with improvement costs. The latter is a capital expense that would be included in the base cost of the property in order to reduce the capital gain on disposal of the property.
Furthermore, expenses must be apportioned where less than 100% of the property is rented out. For example, if the total area of the house (garages and outbuildings included) is 420 square metres, and the landlord only lets 120 square metres, the area let is calculated as a percentage of the total area of the house is 28.57% (120/420×100). Therefore, 28.57% of the total expenses may be deducted from the total rental income of the tax year. This is a great example in instances where only a few rooms in the house are rented out.
In some instances the negotiations between the landlord and tenant are generally informal and usually no financial records are kept by the landlord as the landlord prefers payment in cash and not by means of bank deposits, which would result in no recorded transactions.
However, should this be discovered by the Receiver when an audit is conducted, it would be met with harsh penalties by SARS. In more serious cases of outstanding penalties, SARS could repossess and auction off the property.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)