If you want your property investment to really pay off, it’s essential to have a good understanding of the tax implications of your investments. This is a pretty challenging and complex field, but the right partner can guide you through the rules, regulations and allowances to ensure that you’re properly positioned to enjoy the fruits of your hard work.
Everyone’s favourite – The buy-to-let property
For many property investors, they start by buying a property with the intent to rent it out, and it’s easy to see why this is such a popular choice, especially when you have already gone through the process of buying a home before. It’s also one of the most tax-efficient options if you want to invest in property because you optimise your tax liabilities while receiving dual returns in the form of rental income and capital growth. For South Africans, you are also exempt from paying transfer costs if the property is R900,000 or less, which is a significant saving.
It’s important to remember that rental income is taxable income, but there are certain expenses that can be deducted, including the interest portion of your bond payments, rates and taxes, repairs, as well as maintenance costs (including gardening and cleaning services), insurance fees, managing agent fees and banking fees.
What is the impact of Capital Gains Tax (CGT)?
Capital gains tax is incurred when you sell your property, but some properties are exempt from this tax. For example, it doesn’t apply to your primary residence unless it is sold for over R2 million, and only then is the tax applied to the additional amount it was sold for.
For investment properties, CGT applies and is calculated by deducting the base cost of the property from the proceeds of the sale, and the profit is then subject to tax. There are exemptions though that can help you reduce your capital gains, for example, repairs or improvements to the property, as well as insurance, rates and taxes – so it is essential that you keep all receipts and invoices for each property.
As you can see, staying on top of the tax implications is one of the main challenges any investor will face, including property investors, but it is vital for managing expenses and optimising the returns you will receive.
Jason Scholtz is the CEO at Envision Investments and a leader in the property and strategic investments industry in South Africa. For more investor tips and an insider’s look into the South African market, be sure to get in touch, keep an eye on this blog or visit http://www.envisioninvestments.co.za/