TAX
Here are four great tax benefits when you use the correct structuring for your property portfolio .
Lower tax rates
When you build a property portfolio in a company , you get taxed on the company ’ s net profit for the year multiplied by the applicable tax rate ( 27 % in May 2023 ). This is a lower tax rate than what most individuals with property portfolios are on .
This approach is ideal if you want to keep the company ’ s profits in the company to build your property portfolio further . If you want to move the funds out of the company , you can pay out salaries or directors ’ remuneration . Alternatively , you could declare a dividend , but that will result in an additional dividend tax ( 20 % in May 2023 ).
For capital gains tax , only a portion of your capital gains is taxed . For a company , the capital gains tax is currently 80 %. This means that 80 % of the capital gains will be taxed at 27 %, resulting in a 21.6 % capital gains tax rate .
Trusts are taxed at 45 % ( in May 2023 ), a last resort for a taxpayer . This means that when a trust makes a net profit or capital gain , it is usually distributed to the beneficiaries as income or capital gain , and the beneficiaries pay tax in their personal capacity with their applicable exemptions and tax scales . This wonder is called the conduit principle .
Recording tax-deductible expenses
One of the greatest tax advantages that property investors miss out on is tax-deductible expenses they are not deducting . They end up paying more tax than what they ought to pay . If your properties are held in an entity , proper annual financial statements need to be prepared
SA Real Estate Investor Magazine APRIL / MAY 2023 70