Tax implications on property rentals during the 2010 Soccer World Cup

With just less than six months to the kick-off of the 2010 Soccer World Cup, South Africa is abuzz with expectation. Soccer fever has struck and with it comes much hope and excitement for an international event with a potentially huge upside for South Africans looking to benefit .

Many property owners are looking to let out their homes to foreigners during the tournament and, by so doing, mitigate the effects of the global economic crisis. Rentals being asked range from anywhere between several thousands of rand per day to upwards of R70 000 per day.

However, according to David Warneke, Tax Partner at Cameron and Prentice Chartered Accountants, what these entrepreneurs must not forget is that where there is money to be made in property, the usual parties want in and the taxman wants his share of any World Cup property rental action.

Warneke provides the following insight on the tax implications of renting out your property over this period:

“For tax purposes, the total amount of rental income made must be declared as ‘gross income’ and will be taxed at the marginal rate. A small comfort is that all expenses incurred in the production of this income are deductible. These include commissions paid to rental agents (who are asking up to one quarter of the gross rental), interest on the bond, electricity, water and rates or levies over the period let, as well as the fees paid to a char or cleaning service.”

Then there is the not inconsequential cost of insurance. Warneke explains that it is highly likely that insurance on home contents will increase substantially due to the commercial use of the property. There is also the issue of personal liability cover. “One letting agent is insisting on the presence of a personal liability insurance facility of R50 million before accepting property onto its books.”

Warneke adds some cautionary advice for anyone thinking about evading paying tax on the income made through property rentals: “It should be borne in mind that rental agents are obliged to give to SARS a document showing the rent collected and paid over to a landlord, and in that way SARS will be able to look out for this income on the landlord’s income tax return..”

“Therefore, in assessing whether such a venture is worthwhile, do not forget the old adage that tax is one of life’s great certainties,” concludes Warneke.

Article by: David Warneke - www.campren.co.za