Every time the word tax is mentioned it’s like insects are crawling up your skin. Most of us certainly try to avoid this topic but if you’re investing in property, you have to make time for it. Even if you’ll seek advice from a tax consultant, having a basic understanding of property tax is essential. The reason why we always emphasize the importance of surrounding yourself with the experts is simple. If you are not an expert and running a business, you will make a lot of costly mistakes. With experts in your team mistakes are less likely to happen.
One of the key people in my team is the tax advisor.
Uncertain of where to start? No need to worry, we’re here to assist you to crack the mysterious property tax.
What does Section 13sex mean?
Although paying tax is burdensome to anybody, multiple South African investors have saved a lot of cash through a tax break. As a result of Section 13sex, property investors can ‘write off’ the fee of all new and unused residential units which are built post 21 October 2008 at a percentage of 5% per year.
What is required to qualify for this tax break?
- The property of investment should be in South Africa.
- The taxpayer has to own a minimum of five residential units – all of them buy-to-let properties. You don’t have to buy all five at the same time.
- This property should not be used as a primary residence by the investor – simply put, you should rent it out for an income.
- The estate must either be vacant or new and used for the purpose of residential.
Other tax associated with property investment
In the course of purchasing a property from a seller, you might be responsible for the following taxation:
Transfer duty tax
You are liable to pay the transfer duty on a property that is selling above R900 000. The following table gives a detailed breakdown of what you can expect to possibly pay:
|Property Price||Transfer Duty Amount|
|0 – 900 000||0%|
|900 001 – 1 250 000||3% of the value above R900 000|
|1 250 001 – 1 750 000||R10 500 + 6% of the value above R 1 250 000|
|1 750 001 – 2 250 000||R40 500 + 8% of the value above R 1 750 000|
|2 250 001 – 10 000 000||R80 500 +11% of the value above R2 250 000|
|10 000 001 and above||R933 000 + 13% of the value above R10 000 000|
Rental Income Tax
If your investment property is a buy-to-let (and you’re getting monthly rent), then the total of whatever amount you get will be taxed. Residential accommodation consists of:
- Bed-and-breakfast establishments
- Holiday homes
- Renting a portion of your home, e.g. a room or a garden flat
- Other similar residential dwellings.
How is rental income tax calculated?
Lawfully, you are required to add the rental income you receive to any other income you have. It can also be decreased by certain acceptable costs incurred.
Capital Gains Tax (CGT)
Even though a majority of property sellers won’t be accountable to pay any Capital Gains Tax (CGT), understanding this vital concept is still useful. CGT is associated with the disposal of an asset on or after 1 October 2001. It is tax that applies to the resale of assets – including property. Anyone who sells or disposes a property is responsible to pay CGT.
If you want more information on this, read up on the most frequently asked questions for a better understanding.
Why paying your tax matters?
It’s never good to skip tax season and if you avoid paying, you’ll be putting yourself in an unfavourable position, facing a multitude of disadvantages which may include:
No refunds benefit
Is there a possible benefit at the end of filing your taxes? Yes, it’s the possibility of getting a refund! Tax refund is usually tax that you have overpaid. So, filing your taxes gives you a chance to reclaim that money.
You might not be able to access bank loans
When you pay and file your taxes you will have a decent and complete record. However, if you’re avoiding doing this easy task, you might not be able to visit any bank to ask for an investment or home loan. So, always make sure that you’re complying with tax requirements.
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