Starting out with the basics!

Taxes that apply to individuals and companies (including trusts) for both residential and commercial property:

1. Transfer duty or VAT- TD is the tax imposed on the transfer of fixed property from one party to another, typically exempt when purchasing directly from a property developer, please note that in all other instances except for those where the seller is a registered VAT Vendor or where two registered VAT vendors are transacting (residential nuanced) transfer duty will apply. This is paid over to the conveyancers and they will submit the transfer duty return to SARS and pay the tax on your behalf.

2. Capital gains tax (CGT)- When selling off your fixed property, a capital gains tax calculation needs to be applied to ascertain the capital gain or capital loss on the property sold. The calculation is as follows: Proceeds- base cost (the price you paid for property plus all other expenses incurred to get the property to its sellable position.) If a gain has been realised, take note of the inclusion rates, which differ from the tax rate. First apply the inclusion rate, then the tax rate. For an individual, only 40% of the gain is included in taxable income (60% of your gain is tax free), for any other entity 80% of the gain is included in taxable income (20% of your gain is tax free) and thereafter taxed at the relevant tax brackets or tax rate per individual, company, trust etc. The same applies if the property was sold at a loss, typically the loss is ring fenced and offset against future capital gains made, however, it is common that SARS allows the loss to be offset against other taxable income not relating to the property in the year the loss was realised.

3. Income tax- if you are renting out fixed property,
Rental income less all qualifying rental expenses is taxable and needs to be included in the tax calculation of the individual, company or Trust and declared to SARS.

Whether you are purchasing property, selling property or renting out property, various taxes apply and it’s important to factor these into your property plans and strategies from the onset.

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