Page 28 - Nexia SAB&T Property & Tax Guide 2022

TAX IMPLICATIONS ON THE LEASING
OF PROPERTY

For the landlord:
◆ All income received from rental of a property is of a revenue nature and has to be
declared as part of a landlord’s gross income.
◆ Deductions are available, such as: interest on bond repayments, repairs and
maintenance, municipal rates and taxes, letting agent’s fees (if applicable), and
expenses not recovered from the tenant, such as security, utilities or garden services. In
the case of a sectional title scheme, the levy is also deductible.
◆ In order for the deductions to be allowed the expenditure must have been actually
incurred in the production of income and not be of a capital nature. The landlord must
effectively be able to satisfy SARS that he is carrying on a bona fide trade through the
rental of his property.
◆ The cost of improvements, reconstructions or additions to the property cannot be
deducted, as these expenses are of a capital nature. Improvements made to leasehold
property in terms of a lease agreement by the tenant must be included in the income
of the landlord. Either the stipulated amount or a fair and reasonable value will be
included. There may be relief available for the landlord, in terms of Section 11(h) of the
Income Tax Act.
For the tenant:
◆ The tenant can claim the rental expense as a deduction for tax purposes if the rental
payment or expenditure was actually incurred in the production of income.
◆ If improvements are made to leasehold property in terms of a lease agreement by the
tenant, these must be included in the income of the landlord. Either the stipulated
amount or a fair and reasonable value will be included.
◆ The tenant may deduct such expenditure over the period of the lease. The landlord may
be entitled to discount the value of the improvements over the period of the lease or
25 years, whichever is the shorter.

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