Real Estate Investor Magazine South Africa July 2013 | Page 8

INBOX Tax On Property Q Michael Dryden FinServe Trust Accounting www.finserve-trusts.com Frank Edwards Asks: Managing Tenants Q Michelle Dickens TPN www.tpn.co.za Megan Taylor Asks: Investing In REITs Q Estienne de Klerk SA REIT Association www.sareit.com Zola Mbengu Asks: When you own more than one property, what will you be taxed and are there rebates if you own more than one? How does tax work when you generate income from more than one property? I have recently bought a number of f lats in a complex, and I want to rent them out. What should I be wary of when looking for tenants? I am an investor and would like to invest in REITs, please can you explain the benefits of the new SA REIT structure to me? A A A Michael Dryden Responds: Tax will only be relevant where income is generated on a respective property, be it your first, second or third property. Usually the income generated on a property is in the form of a rental, and such rental is subject to income tax. Fortunately, earning rental on a property is treated as a ‘trade’ for tax purposes, and therefore income tax is calculated on the ‘net profit’ of the trade (ie not just the income). In simple terms, income tax is calculated on the net: amount after deducting ‘permissible’ expenditure such as bond interest, levies, repairs and so on related to the property in question. Tax is then paid on the above according to the tax rate of the particular taxpayer (eg individual, company or trust). W here a ta xpayer owns more than one property, the amounts are pooled together to represent the trade as a whole. Therefore a loss on one particular property is automatically setoff against a profit on another; balancing this results in a tax efficient property portfolio. Capital allowances (write-offs) for property is limited, but they do exist. Michelle Dickens Responds: From the outset, it’s vital to ensure that the tenant you choose will not default on the rent or electricity, cause damage to the property or result in costly legal fees. A simple credit check through TPN enables landlords to view the credit history of all tenants and co-tenants. While leases can be written or verbal, a written lease provides the best protection. It is unwise to take the property off the market until the tenant has signed the lease agreement and paid the deposit. The same applies for handing over the keys of the property, which should only be done once the agreement is signed and the first month’s rent has been paid in full and cleared. If you want to attract the right type of tenant, make sure that the property is maintained to its full advantage. In this way, you’re also able to avoid the risk of the tenant withholding rent for maintenance. A well-maintained property will provide rental income and capital growth – don’t lose value on the property due to non-maintenance. Estienne de Klerk Responds: The SA REIT has opened up new potential for the SA listed property sector. The SA REIT gives the listed property sector an internationally-recognised structure, in which good governance and best practice is ingrained, which will allow the sector to grow with tax certainty. It is also flexible enough to adapt to various models while encouraging best-ofbreed practices. This is attracting new listings to the sector, which are set grow its market capitalisation even further. South Africa’s new REIT structure has also put the listed property sector more firmly on the radar of international investors. Benefits of REITs in SA include: • The unique structure of the SA REIT asset class provides two possible ways of beating inflation: capital investment growth and regular income distributions that grow. • SA REITs have equity and bond characteristics. SA REITs offer investors the best of both worlds. A recurring cash distribution yield like a bond as well as growth in income like equity. • Your investment is predominantly underpinned by lease agreements with tenants in property assets. Do you have a property question you would like answered by our experts? If so, post it on ASK THE EXPERTS on www.reimag.co.za or email [email protected] 6 July 2013 SA Real Estate Investor www.reimag.co.za