Investment Property Taxes

The buying and selling of property is very interesting and engaging, to us atleast, irrespective of which end of the transaction one finds herself; whether selling or buying. At Mhlaba Property Company (Aegean Mhlaba Property (PTY) LTD) we love discussing property with you, but for the past week or so we've been mulling over the subject for this week. With impetus from our neighbour SFS Holdings (Bus Accountants and Tax Consultants), the discussion has some legs.

So, here goes, irresepective of how we feel about etols, even if they happen to be massed over your door step, we all have to adhere to the country's tax laws. For you to maximise return on your investment property, we have to pay attention to Taxes. For this discussion, the attention is on rental income from your investment property.

Irrespective of the state of the entity (private person, company or trust) rental income from your investment property is subject to Income Tax. Other Investment Property related Taxes will be Capital Gains which are calculated at the disposal of the property. The income from the usage of that property is taxable. Before marching about that injustice; consider the list of deductibles that one is allowed on the rental income: Municipal rates and taxes; bond interest; advertisements; agency fees of estate agents (property management); insurance (only homeowners not household contents); garden services; maintenance and repairs; security; and property levies.

One needs to be cognizant of the difference between improvement and maintenance costs. Improvement costs are capital costs which are to be included in the base cost of the property’s capital gains, reducing liability on sale of the property: Therefore, these are not deductible for normal income tax purposes. Keeping a record of these cannot be over emphasized; the guys at SFS Holdings recommend scanning these and backing them up externally. The supply of a ‘dwelling’ is a VAT exempt supply, just in case one ever wonders about such matters.

During a particular financial year the costs may exceed income, the loss may be offset against other income earned by the property owner, provided that losses are not ‘ring-fenced’ in terms of prevailing anti-avoidance provisions. It is our recommendation that one consult a tax specialist regarding further tax discussion, as we did on this.