Tax Implications of Owning Rental Property in South Africa

Rental income is considered as a taxable income in South Africa. The tax implications of owning a rental property vary based on the type of rental property, rental income, expenses incurred, and several other factors.

The South African Revenue Service (SARS) has strict regulations in place to ensure that rental property owners pay their fair share of tax.

In this article, we will discuss the tax implications of owning rental property in South Africa.

Types of Rental Income

There are two types of rental income in South Africa – residential rental income and commercial rental income.

Residential rental income refers to rental income generated from residential properties such as apartments, houses, and townhouses.

Commercial rental income, on the other hand, refers to rental income generated from commercial properties such as office buildings, warehouses, and shops.

Taxable Income

All rental income received from a rental property is considered as taxable income. Rental income is taxed in the same way as any other income received.

The rental income is added to your total income and taxed according to the tax brackets for individuals.

The tax brackets for individuals range from 18% to 45% depending on the amount of taxable income received.

Expenses Incurred

As a rental property owner, you are allowed to deduct certain expenses incurred from your rental income.

These expenses include property maintenance, repairs, property insurance, and interest paid on the mortgage.

However, it is important to note that you cannot deduct the full amount of your mortgage repayments from your rental income.

You can only deduct the interest portion of your mortgage repayments.

Capital Gains Tax

Capital gains tax (CGT) is a tax on the profit made from the sale of an asset. If you sell your rental property for a profit, you will be liable to pay CGT.

The CGT is calculated based on the difference between the selling price and the purchase price of the property.

The CGT rate for individuals is 18% of the profit made from the sale of the property.

Value-Added Tax

If you are a VAT vendor and you rent out a commercial property, you will be liable to pay value-added tax (VAT) on the rental income received. The current VAT rate in South Africa is 15%.

Withholding Tax

If you are a non-resident and you rent out a property in South Africa, you will be subject to withholding tax. The withholding tax rate is currently set at 15% of the rental income received.

Owning a rental property in South Africa comes with tax implications that need to be considered.

It is important to understand these tax implications to avoid any legal issues and ensure that you are paying the correct amount of tax.