For many property owners, taxes are one of the biggest worries, especially how SARS treats property investments. The two main areas that concern most taxpayers are Capital Gains Tax (CGT) when selling a property and how rental income is taxed. Here’s a straightforward guide to help you understand both.
1. Capital Gains Tax (CGT)
When you sell a property, SARS may tax the profit you make on the sale. But the rules differ depending on how the property is used.
Your primary residence (the home you live in)
If the property you sell is your primary residence, the first R2 million of your capital gain is exempt from CGT.
Because CGT only applies to gains made after 1 October 2001, most homeowners will only face CGT if their home is exceptionally valuable.
Properties used to earn income (e.g., rentals)
If the property is used for trade – for example, rented out to tenants – then the gain from date of purchase (or from 1 October 2001, whichever is later) is subject to CGT.
Even then, CGT should not be the deciding factor in your investment decisions. Only the gain is taxed, and for individuals, the maximum effective rate is 18%.
Using part of your home for business
If you’ve used a portion of your home as a home office or business space, the primary residence exemption must be split between the personal-use and business-use portions and further adjusted based on how long the business portion was used.
In most cases, the resulting CGT amount for the business portion is relatively small.
When the home is owned by a company or trust
The R2 million primary residence exemption only applies to natural persons.
If your home is owned by a trust, company, or close corporation, the full gain is taxed at higher effective CGT rates (36% for trusts and 21.6% for companies and CCs).
2. Income Tax on Rental Properties
With more people buying rental properties during the recent property boom, many ask the same question: How is rental income taxed?
Rental income is fully taxable
All rental income is included in your taxable income. There are no exemptions for rent received.
You can claim certain expenses
Section 11 of the Income Tax Act allows you to deduct expenses incurred in producing that rental income. These may include:
Repairs and maintenance
- Municipal rates, electricity, and water (if not paid by tenants)
- Rental agency commissions
- Interest on the bond
- Insurance and similar running costs
- Improvements vs Repairs
Only expenses of a “consumption” nature qualify as deductions. This means:
- Repairs (restoring something to its original condition) are deductible.
- Improvements (adding something new or upgrading the property) are not deductible, but they can be added to the base cost to reduce CGT when you sell.
For example:
Buying a fixer-upper and renovating it is not considered “repairs” for tax purposes – it’s an improvement.
However, if a tenant damages your property and you must repair it to make it liveable again, those costs can be deducted.
3. “Ring-fencing” Rental Losses
If your taxable income exceeds the top marginal bracket (currently R1 817 000) and your rental property is making a loss, you need to be aware of Section 20A, which contains the “ring-fencing” rules.
This means SARS may prevent you from offsetting rental losses against your other income (like your salary).
However:
- SARS can only apply this rule after three consecutive years of rental losses.
- It does not apply if you are below the top tax bracket.
Final Thoughts
Property remains a strong long-term investment, but understanding the tax implications helps ensure there are no surprises. Whether you’re selling a home, renting out a second property, or using part of your home as an office, knowing how SARS applies CGT and income tax can help you plan wisely and avoid unnecessary stress.
If you need personalised guidance, consider seeking help from a tax professional who can advise based on your unique circumstances.