Pay Less Tax on Your Property
2018 brought us a flock of emails from our property investors requesting advice on TAX. We received ample queries from our investors asking us how they can save on tax, or how they could change their property ownership structure to avoid TAX. So 2019, here is some information ready to start planning your year to be more efficient and save some bucks.
Luckily, the tax system in South Africa allows property owners to claim expenses incurred on their properties, as a Tax deduction from SARS. Such costs include municipal service costs, Levies charged by the body corporate Maintenance and repairs to the property, insurance premium costs, and agency fees.
Expenses that may be deducted include:
* Rates and taxes;
* Interest on the bond (not your capital repayments)
* Estate agents’ fees including management, placement fees, maintenance oversight fees
* Insurance premiums (only homeowners, not household contents);
* Garden services;
* Repairs and maintenance of the property; and
* Security and property levies.
It is important to note that property improvement costs are not tax deductible and cannot be used to gain tax deductions from SARS. It is also important to note that residential properties are VAT exempt, meaning you cannot charge VAT on the letting of residential premises. The implication on this is that you cannot submit claims for the VAT incurred on your property maintenance. Ie - if your agency charges you VAT, you cannot claim this vat portion from SARS as a tax deduction. VAT can only be claimed in accordance with the rules of the VAT Act if the owner is a VAT vendor, such as most commercial property might attract.
Should the expenses you incur on your property exceed your income, you may be able to offset the loss against your other income. You need to be able to prove this to SARS. This also means that your property should be held in the same form of ownership as your income is received, ie in a personal capacity.
Since 21 October 2008, section 13sex has made provision for certain allowances that may be gained from Urban Development Zones. Generally, this results in an allowance of 5% per annum over a 20-year period for the purchase of any new and unused residential units, or any new and unused improvement to a residential unit, owned by the taxpayer.
If a residential unit qualifies as a “ low-cost residential unit” (as defined), the landlord may be eligible for an additional 5% allowance (ie the allowance would be increased to 10% of allowed costs per annum over a 10-year period).
If you own at least 5 unused properties (ie. for letting purposes) SARS will allow you an additional 5% annual allowance against the purchase price of such properties.
Heres a list of records you need to keep to provide SARS with the relevant information, we suggest you start a convenient way for you to file these documents.
* Monthly rates and taxes statements;
* Monthly home loan statements from the bank;
* Levy statements;
* Homeowners insurance schedule;
* Any utility bills for services included in the rental;
* Advertising and agency invoices;
* Slips and invoices for any repairs and maintenance done; and
* Garden services or any other services necessary to make the home rentable.
A word of advice: rental income is added to your taxable salary, ensure that when you purchase a property it does not send you into a higher taxable income bracket. Purchasing a property for letting purposes can end up costing you more tax than you ever imagined. Look out for an article from us later this year on forms of property ownership.
All The Best