Tax can make or break the potential returns from an investment in
residential property. To benefit from possible tax breaks while avoiding
the pitfalls, investors should be aware that different investment
vehicles can significantly increase or reduce their tax liability. In
this article we focus on the purchase of property for the purpose of
earning a return rather than for use as a primary residence.
Three main investment vehicles are generally used in South Africa to
house residential property and two of these work reasonably well from a
tax point of view - these are to buy a property in your own name or in
that of a trust formed for this purpose.
Looking purely at the tax implications, the third option, ownership
through a company, is not as good an option in most circumstances.
Whereas the total effective tax rate for the first two options is 0% to
13.3% in the case of ownership in one's own name and 26.6% in the case
of ownership by a trust, the total effective rate for companies is
30.8%, including 15% dividends tax. These rates exclude transfer duty or
VAT on acquisition of the property.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.