Real Estate Investor Magazine South Africa Dec/January 2020 | Page 10

Direct your property investment question to [email protected], go to our Facebook page or participate in our regular Facebook LIVE interviews to ask your questions Taxation on rental income Q CARLO MARIANI Founder of The Property Coach With regards to an existing portfolio of paid-off properties, what would be the best way to minimize your taxation on rental income and grow your portfolio with more properties by re-financing the properties with additional bonds against them? A T here is no such thing as the “the best way” to minimise taxation on rental income. It always fundamentally depends on your personal, family and financial circumstances — but most importantly on your attitude towards one thing called, “debt”. Some property people love debt, some property people hate it. And I guess they are both right. I come from a conservative middle-class family background where I was continuously reminded that debt is bad and for many years, I truly believed that. I even bought my first car for 100% cash when I was still living in Italy. Some property people focus on saving so that they can buy a property without needing a bond, some people take up a bond “reluctantly” and then do whatever they can to pay off that bond as soon as possible. So, here are 3 tips and tricks: 1 Understand the pros and cons of the options available to you when it comes to structures People always ask me what’s the BEST structure to invest in property. And I always respond: “It depends”. It really depends on your circumstances and vision to choose the structure that is more “fit for purpose” whether it’s a pty ltd, a trust, your own personal capacity or joint ownership. It is essential that you understand the pros and the cons that all the above options have and then make an informed decision, rather than letting 8 DECEMBER/JANUARY 2020 SA Real Estate Investor Magazine other people tell you what you should do. 2 3 Never take tax “shortcuts” Understand the difference between tax elusion and tax evasion and NEVER cross that border. Embrace debt as a “means of wealth production” In fact, stop calling it debt because such word is so often loaded with a lot of negative connotation. Call it “borrowed capital” and embrace it as a mean of wealth production. If you want to go fast go on your own, if you want to go far go with somebody (and borrowed capital is one of the companions on the exciting journey of property). By the way, I love debt because debt is a “means of production” for me as a property investor. I base this on my research and observations that very wealthy people and organisations know how to make money work for them. Let us not forget that the banking system is based on the fact that banks borrow money as debt from private savers and then lend it back (often to those very same people using the banking fractional system). And it seems to me that banks in South Africa are making a lot of money using this strategy… Disclaimer: Neither Carlo Mariani nor ThePropertyCoach are Tax Practitioners and the above views should not be deemed as tax or legal advice. Please consult with your tax and legal practitioner before you make any final decision.