Tax implications on property rentals during the Easter holidays

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Moneywebtax.co.za - 19 April 2011

The Easter holiday period is upon us and with it comes an increase in the letting of holiday homes along popular coastal areas.

Many property owners have let out their homes during the Easter period and, by so doing; hope to mitigate the effects of bad debt and the rising cost of living. Rental prices often range anywhere between a few hundred Rands per day to several thousands of Rands.

However, what these entrepreneurs must not forget is that where there is money to be made in property, the South African Revenue Services wants his share of any property rental income earned.

For tax purposes, the total amount of rental income made must be declared as gross income and will be taxed at the marginal rate. A small comfort is that all expenses incurred in the production of this income are deductible. These include commissions paid to rental agents, interest on the bond, electricity, water and rates or levies over the period let, as well as the fees paid to a char or cleaning service.

Then there is the not inconsequential cost of insurance. It is highly likely that insurance on home contents increases substantially due to the commercial use of the property.

However, anyone thinking about evading paying tax on the income made through property rentals: It should be borne in mind that rental agents are obliged to give to Sars a document showing the rent collected and paid over to a landlord, and in that way Sars will be able to look out for this income on the landlords income tax return.

In addition, in assessing whether such a venture is worthwhile, do not forget the old adage that tax is one of life's great certainties.

*David Warneke is a tax director at BDO South Africa