Smart tax tips for renting out your property

Renting out a property can be a worthwhile investment, but it also comes with tax implications that you need to comply with. If you take the time to understand how the tax rules apply to rental properties, it can help you maximise your rental income within the boundaries of South African tax laws. Here are five smart tax tips for renting out your property:

1. Always declare your rental income

Any income you earn from renting out property must be declared to the South African Revenue Service (SARS). This includes rental payments, as well as any extra income you receive from services you provide to tenants, such as parking or garden services. If you don’t declare your rental income, you could be charged penalties and interest. It’s best to keep accurate records and to report all rental earnings.

2. Make sure you deduct all your allowable expenses

As a landlord you are entitled to deduct certain expenses related to the maintenance and management of your rental property. These allowable expenses can help reduce your taxable rental income. Allowable expenses include:

3. Keep detailed records of everything

Maintaining accurate records of your rental income and expenses is critical for tax purposes. Keep all your invoices, receipts and bank statements in a safe place where they are also easily accessible. These documents will support your tax deductions and provide evidence if you are audited by SARS.

4. Take time to understand Capital Gains Tax (CGT)

When you sell a rental property, you may be liable for Capital Gains Tax (CGT) on any profit made from the sale. CGT is calculated based on the difference between the selling price and the property's base cost, adjusted for certain expenses and allowances. It's very important to understand CGT implications when buying and selling rental properties. If you are finding this difficult, you can speak to a tax consultant for guidance on minimising your CGT liabilities.

5. Take note of the tax implications of short-term rentals

If you're renting out your property on a short-term basis, such as through platforms like Airbnb or LekkeSlaap, be aware of the tax implications. Short-term rental income is taxed at your marginal tax rate, which may be higher than the rate for long-term rentals. Furthermore, you may need to register for Vat if your short-term rental income is higher than the Vat threshold.

If you are new to the rental game, it may be worth your while to speak to a professional tax consultant. They can help you set up your filing system and tell you how to document everything in the most efficient manner. If you get it right, right from the start, you will minimise your tax payments and maximise the money you make from your rental.