Real Estate Investor Magazine South Africa March/April 2020 | Page 56

SERIES PART 3
INVESTOR INTELLIGENCE
Don’t let tax hold
you back
Understanding how
tax works within your
property investment
legal structures
JACO GROBBELAAR
Tax is such a hot topic that even the Beatles
sang about it. When I meet with clients, they
probably have more questions about tax
and tax implications with their property
investments than anything else.
S
ometimes it seems as if people are more focused on
not paying tax than they are on making money. This
often makes me think of the saying, “Penny wise,
pound foolish” … Let’s assume that the income tax rate for trusts is 45%, and
28% for companies. For individuals, a tax bracket scale applies.
These assumptions are based on actual tax rates when this
article was written.
I will never forget what one of my mentors, a Chief Financial
Officer of a JSE-listed company, always used to say: “There is
one thing worse than paying tax and that is not paying tax.
Rather build wealth and pay tax than not build wealth.” The
good news is that a property portfolio with the right structure
is probably one of the best investment vehicles to use to pay
minimal taxes. Income tax:
According to SARS, income tax is the normal tax paid on
your taxable income. For a company or a trust, this tax
will be applied to your net profit. The annual net profit is
calculated as follows:
Your income will be your rental income.
Your expenses will be the interest portion of your
bond payment, levies, rates and taxes, maintenance
(excluding improvements, which should be
capitalised), administration fees and all other
expenses relevant to your property portfolio or
legal structure.
All these expenses are tax-deductible expenses that
can be deducted from your income to derive your
net profit.
On this net profit amount, your tax will be calculated.
Let’s start by looking at how taxes will apply to your
property investment portfolio given the different structures in
which you can build your property portfolio as discussed in the
previous articles in this series.
The two main types of taxes applicable to your property
portfolio are income tax and capital gains tax. And when you
invest in commercial property, value-added tax (VAT) often
applies, but we will not discuss VAT in this article.
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MARCH/APRIL 2020 SA Real Estate Investor Magazine