Growing your property portfolio can enhance your wealth in more ways than you expect, thanks to various tax deduction benefits and property investment tools that are available to South African investors.
If you are renting out properties to tenants, various expenses may be deducted from your taxable income. Over and above this, tax breaks are available for investors who own at least five new and unused residential properties in South Africa. Here’s everything you need to know about tax benefits if you’re capitalising on property investment opportunities.
Are there tax benefits to owning a house in South Africa?
If you own your primary residence, then there is no taxable income generated from the property and therefore no tax deductions are available. All costs incurred as a result of property ownership are of a personal nature.
While there are no direct tax benefits to owning your home, it is a long-term investment that will bear dividends in the future once it is a fully paid-off asset that belongs to you and your family.
What are the tax obligations of property investors?
If you’re a landlord in South Africa, your monthly rental income must be included in your taxable income. This applies regardless of whether your properties are held by you as an individual, or in a corporate entity or trust. On the plus side, all the costs that you incur in order to generate your rental income are deductible. This includes property management fees, municipal rates, levies, costs of repair and maintenance, insurance premiums and municipal service costs.
It is important for landlords to keep detailed accounting records so that supporting documentation can be given to SARS upon request. It is also advisable to work with a tax practitioner to ensure that your affairs are managed according to the letter of the law.
These tax obligations don’t only apply to “conventional” landlords who rent out an investment property or granny flat on a monthly basis. It also applies to holiday homes, bed and breakfasts and landlords who rent out a room within their own residences.
What is the SARS incentive for property investors?
Thanks to a little-known piece of legislation in Section 13 of the Income Tax Act, there is a jaw-dropping tax incentive designed specifically for buy-to-let investors who buy properties off plan and rent them out. If certain criteria are met, investors can write off a percentage of the cost of all such properties acquired after 21 October 2008. When these write-offs are considered over the 20-year period of a home loan, they can add up to millions of Rand. In a nutshell, the legislation states that if a landlord owns at least five new and unused residential properties in South Africa, then they are entitled to write off a percentage of the cost of their properties.
There are various criteria that landlords must meet to be eligible for this incentive:
- There must be at least five properties in the portfolio. These can be owned by the investor personally, or by an entity in which the investor is the main director or shareholder.
- None of these five properties can be occupied by the owner at any time.
- All properties must be residential properties that have never previously been occupied.
- All five properties must be in South Africa. They do not need to be in the same development or the same area.
If you’re looking for a new investment property to add to your portfolio, contact the Seeff Properties team. With decades of knowledge and experience, we can help you navigate the tax benefits of property ownership in South Africa. We can also walk you through every stage of the property investment journey, from securing the right property to finding the right tenant.
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