Rental income tax guide
Rental income tax guide
Do I need to pay tax on my rental income?
If you earn income from renting out a property, or even subletting a room in your home, you need to pay tax on it. It doesn't matter if it's your only source of income, or supplementing a salary you receive this rental income must be declared to SARS.
It's also worth knowing that if your taxable profit on your rental income (rent less expenses) is more than R30,000 a year, this could mean that you may have to register as a Provisional Taxpayer and pay tax twice a year via the provisional tax system. Not sure if you're a provisional taxpayer? Use our decision tree to find out.
Rental of residential accommodation includes all of the below:
- AirBnB
- Holiday homes
- Bed-and-breakfasts
- Guesthouses
- Sub-renting part of your house e.g. a room or a garden flat
- Residential dwellings
How is tax calculated on rental income?
All income you receive from rentals should be added on to any other taxable income you earn.
Not only is the monthly rental income subject to tax, but any amount paid to you over and above the monthly rental is too. This could include things like a lease premium, which is a non-refundable lump sum paid by the tenant to the owner or rental agent when they sign the tenancy agreement. Here the full amount is subject to tax in the year that it's received or accumulated.
On the other hand, a rental deposit is returned to the tenant at the end of their tenancy so it does not classify as taxable income and should not be declared in the owner's tax return. It will only become taxable income if the deposit is used by you (for repairs for example) and therefore not paid back to your tenant.
Tax deductions for your rental
Luckily you can deduct expenses you incurred during the rental of your property from your taxable rental income, reducing the tax you need to pay. This doesn't include any capital and/or private expenses, as SARS won't allow those as a deduction. Capital expenses (i.e. assets you've purchased that cost more than R7,000) may be subject to a wear and tear deduction see our wear and tear calculator for more information.
Renting out your property, whether it's a house, apartment, AirBnB or even a room in your house, is like running your own small business. All your income and expenses must be reported in the Local Rental Income section of your tax return form.
Monthly costs you can claim:
- Electricity
- Rates & taxes
- Water
- Levies to the local municipality
- AirBnB agent's & rental agent fees
- Accountant's fee
Other costs you can claim:
- Bond interest (SARS allows only the interest to be deducted against the rental income, not the larger bond/mortgage/capital repayment)
- Advertising costs
- Insurance (this is for the property itself, not household contents)
- Garden services
- Security and property levies
- Wear and tear on furniture
- Repairs and maintenance
If you are only receiving rental income for a portion of your property while you use the rest as your primary residence, you can only claim a portion of the above expenses. Divide the size of the portion being let by the total property size and multiply by 100 to get the claimable percentage.
Calculating the claimable percentage
Repairs vs. renovations what's the difference?
Repairs and maintenance mustn't be confused with home improvements or renovations, as the latter is not tax deductible. A repair is when something is restored to its original (i.e. good) condition, such as:
Reducing tax through depreciation
You can reduce your rental income tax by depreciating the furniture you have inside your rental property. If your house is furnished with beds, couches, dining room tables, coffee tables and electronics that would need to be replaced eventually, SARS allows you to deduct a percentage of these costs each year. This is called "depreciation" and can be declared in the Local Rental Income section of your tax return.
Use our Wear and Tear calculator to check what you can depreciate. As a general rule, assets with a purchase price higher than R7,000 are capitalised and depreciated over several years, while individual items costing less than R7,000 are written off in the year they're purchased.
Which expenses are not allowed?
Home improvements
A home improvement is an update to your property that did not exist before you bought the property, or something that will extend or improve the life of the property. Home improvements increase the income earning capacity of the property and add value to it when it's sold. Examples include:
- Installing an air conditioning system
- Renovating a kitchen
- Installing a security system
- Installing a swimming pool
- Renovating a bathroom
- Adding a deck
- Adding or extending the property
While you can't deduct home improvement costs against your taxable rental income, they are added to the base cost of the property and will reduce your Capital Gains Tax when you sell. Keep all invoices for these costs, as SARS may need to see them. See our Capital Gains calculator.
VAT
When it comes to VAT expense claims, the supply of a "dwelling" is an exempt supply for VAT purposes, and you can't deduct VAT incurred on these expenses.
How do I deduct rental expenses?
When less than 100% of your property is being rented out, you may only deduct a portion of your rental related expenses. This portion is calculated by dividing the floor area of the space being rented by the total floor area of the property (including garages and outbuildings).
Once you have the percentage, you also need to pro-rate the allocated expenses based on the number of days the property was occupied in the year.
500 sqm home with 180 sqm flatlet rented for 250 days
| Expense | Total annual expenditure | Allocated to rental (36%) |
|---|---|---|
| Rates and taxes | R22,600 | R8,136 |
| Interest on bond | R30,000 | R10,800 |
| Security | R6,000 | R2,160 |
| Garden services | R30,000 | R10,800 |
| Advertisements * | R4,000 | R4,000 |
| Property insurance | R12,000 | R4,320 |
| Repairs & maintenance to flatlet * | R8,000 | R8,000 |
| Total expenses | R112,600 | R48,216 |
* 100% of these costs are deductible as they relate directly to the rental.
Pro-rating for days occupied (250 of 365 days)
How do I declare rental income on my tax return?
When you're filling out your ITR12 on eFiling, you need to click yes to the question asking "Did you derive income from the letting of fixed property(ies)?" It will then open up the local rental income section on your ITR12, which you can fill out and submit.
When filling out the income derived from any rental properties, it's incorrect to only declare the net value of the rental income received. You will need to insert the gross (total) value of rental income received and then enter your applicable expenses like interest, insurance, rates and taxes.
There is also a field for the description of your rental property for example: Rental of my garden cottage at 3 Newlands Avenue, Newlands.
There is also a field for the 'Unique Identifier'. If you haven't declared rental income before, you can leave this field blank. But if you did declare rental income for this property last year, check your prior year ITA34 (assessment) for the unique identifier and copy that number to the relevant field in your current year tax return.
If you're using TaxTim, we'll ask you a series of easy questions and fill this out automatically for you.
FAQ
If your expenses exceed your rental income, this loss should be offset against other income earned by the homeowner, provided that losses are not "ring-fenced" by SARS in terms of prevailing anti-avoidance provisions. "Ring-fencing" means that SARS will carry this loss over to the next tax year and offset it against your rental income, and won't offset it against salary income in the current year. Homeowners must be able to satisfy SARS that they are carrying on a real trade by renting out their property. See our ring-fence loss decision tree to find out if your rental loss must be ring-fenced.
If you're renting out more than one property and earning rental income from each, then you need to declare each rental property one at a time (i.e. don't add them all together). SARS wants to see the incomes and expenses for each property separately.
SARS still wants you to declare each property separately. You may not pay a lot of tax because the loss will get set off against the profit, but you should still tell SARS about each one separately.
If your tenant has not paid you the rent money that is due to you, you have two options: (1) Include the rental income that you should have received during the tax year in your tax return and also declare the portion not received as bad debts in the expenses section; or (2) Only declare the rental income that you actually received and exclude the rental income you did not receive and do not claim the bad debts in the expenses section. Bad debts can only be claimed if the income that should have been received is included in your gross rental income.
If you own the property with a husband, wife, friend or business partner, and you each own a percentage of it, then you would need to either: (1) use that percentage and apply it to the incomes and expenses in your tax return so that you only declare your share; or (2) indicate that you're part of a partnership, provide the partnership details in your tax return, declare 100% of the rental income and expenses, and SARS will allocate your share based on the partnership percentage you indicated.
You, unfortunately, can't claim a deduction for your personal expenses against your rental income.
You can only claim the interest portion of the bond instalment. The full bond instalment cannot be deducted because a portion of the payment goes towards paying off the capital portion of the loan.
Yes, you can claim this expense against your rental income.
Yes, you can claim a deduction, as long as you have proof of this transaction.