The tax season is approaching, and there are several ways that property owners and prospective purchasers and sellers are affected by tax, says Samuel Seeff, chairman of the Seeff Property Group.
Start by visiting the SARS website (www.sars.gov.za) which is user-friendly and provides information on what is taxable, at what rate and what is claimable. For ordinary homeowners and property buyers and sellers there is usually not much that they need to be concerned about when it comes to their annual tax return. Those with more than one property are, however, best advised to consult with a tax specialist for the right advice.
Some basic tax regulations to be aware of include:
Tax and buying a property
Transfer duty tax is payable on all property purchases above R1 million. New developments usually do not attract transfer duty as VAT (value added tax) is payable. Transfer duty is payable on the full purchase price. The relevant transfer duty tables are published annually on the SARS website.
This tax is payable at the time when the property is purchased. Prospective purchasers will therefore need the upfront cash for this to be paid (along with other costs such as attorney fees, bond registration and other incidentals) before the property can be registered in their name.
Tax as a landlord
Rental income received must be declared and included with your income on your annual tax return. This applies irrespective of whether you are renting out a whole property or just a room.
You can deduct certain expenses incidental to the rental property such as interest on a home loan, maintenance and upkeep, estate agency costs and property taxes. Renovations and improvements cannot be deducted as these are as capital expenditure which are non-tax deductible.
Losses in connection with a rental can be offset against other income, but the provisions of “ring-fencing” apply. Consult a tax specialist for clarity.
Tax and selling a property
Capital Gains Tax (CGT) applies to the sale of all primary and investment property sold for a profit which is referred to as a “gain”. There is, however, a R2 million exclusion on a primary residence.
To arrive at the taxable gain, you need to calculate the base costs (purchase price and improvements) which is then deducted from the selling price. The net gain over R2 million is then subject to CGT in the case of a primary residence and the full net gain in the case of secondary and subsequent properties.
While the R2 million exclusion does not apply to secondary properties, the annual exclusion allowance of R40,000 still applies. The CGT tax rate is published on the SARS website and is currently 18% for individuals.
Tax and working from home
Since the onset of the Covid-19 pandemic there has been a shift to more people working from home and incurring costs such as telephone and data expenses and needing to set up and kit out home offices.
You can deduct certain expenses relating to working from home such as communication, data and stationery, but these must be verifiable.
When claiming for the space used, you need to comply with the SARS regulations. The space must be solely used to work in and to earn an income. If you are in full-time employment, more than fifty percent of your work must be done in this home space. If you are a commission earner or on variable pay, more than half of your work must be done offsite from your employer.
All expenses must be verifiable. You can claim for aspects such as proportionate rent, property taxes and utilities, maintenance and cleaning, office supplies and stationery, internet, telephone costs, and furniture and equipment. Get more information on the SARS website or consult a tax professional.