Tax guide and property transaction. Everything you need to know.

The tax season is approaching, and there are several ways that property owners and prospective purchasers and sellers are affected by tax.

Samuel Seeff, chairman of the Seeff Property Group says start by visiting the SARS website which is user-friendly and provides information on what is taxable, at what rate and what is claimable. For ordinary homeowners and property buyers and sellers there is usually not much that they need to be concerned about when it comes to their annual tax return.

Those with more than one property are, however, best advised to consult with a tax specialist for the right advice.

Some basic tax regulations to be aware of include:

If you are purchasing property

Transfer duty tax is payable on all property purchases above R1 million. New developments usually do not attract transfer duty as VAT (value added tax) is payable. Transfer duty is payable on the full purchase price. The relevant transfer duty tables are published annually on the SARS website, says Seeff.

He says this tax is payable at the time when the property is purchased. Prospective purchasers will therefore need the upfront cash for this to be paid (along with other costs such as attorney fees, bond registration and other incidentals) before the property can be registered in their name.

If you are renting out property

Rental income received must be declared and included with your income on your annual tax return. This applies irrespective of whether you are renting out a whole property or just a room, advises Seeff.

"You can deduct certain expenses incidental to the rental property such as interest on a home loan, maintenance and upkeep, estate agency costs and property taxes. Renovations and improvements cannot be deducted as these are as capital expenditure which are non-tax deductible."

"Losses in connection with a rental can be offset against other income, but the provisions of "ring-fencing" apply. Consult a tax specialist for clarity."

If you are selling a property

"Capital Gains Tax (CGT) applies to the sale of all primary and investment property sold for a profit which is referred to as a "gain". There is, however, a R2 million exclusion on a primary residence."

To arrive at the taxable gain, Seeff says you need to calculate the base costs (purchase price and improvements) which is then deducted from the selling price. The net gain over R2 million is then subject to CGT in the case of a primary residence and the full net gain in the case of secondary and subsequent properties.

"While the R2 million exclusion does not apply to secondary properties, the annual exclusion allowance of R40,000 still applies. The CGT tax rate is published on the SARS website and is currently 18% for individuals."

If you are working from home

Since the onset of the Covid-19 pandemic there has been a shift to more people working from home and incurring costs such as telephone and data expenses and needing to set up and kit out home offices, says Seeff.

"You can deduct certain expenses relating to working from home such as communication, data and stationery, but these must be verifiable."

"When claiming for the space used, you need to comply with the SARS regulations. The space must be solely used to work in and to earn an income. If you are in full-time employment, more than fifty percent of your work must be done in this home space. If you are a commission earner or on variable pay, more than half of your work must be done offsite from your employer."

"All expenses must be verifiable. You can claim for aspects such as proportionate rent, property taxes and utilities, maintenance and cleaning, office supplies and stationery, internet, telephone costs, and furniture and equipment. Get more information on the SARS website or consult a tax professional."

Meanwhile, Willima Louw director of South African tax at Sable International looks at how working across borders has a significant impact on how much tax you pay, and to which country that tax has to be paid.

Location determines where you pay tax

When working remotely for a foreign company, it can be complicated to figure out what your tax situation is. If you are a tax resident in your home country but working for a foreign company - for example, being paid from a foreign country - you will generally only be subject to tax by the country you are physically doing the work from. The confusion often comes in when talking about the source of the income. The source of the income isn't where the income is coming from but rather the asset, for example, what is generating the income and where is it sitting?

Look at it this way, if you're a UK tax resident but own a house in South Africa that you are renting out, the house is the asset that is generating the income, so you will pay South African tax on that income, even though you are not tax resident in South Africa. However, if you are an employee who is sitting in the UK but working for a South African-based company, you are the asset that is generating the income, so you will be taxed by UK law.

The OECD Model Tax Convention on Income and on Capital establishes that "the general rule as to the taxation of income from employment (other than pensions), namely, that such income is taxable in the state where the employment is actually exercised." But your tax residency also comes into play.

Understanding tax residency

To understand this better, you first need to understand what being tax resident is. South Africa has a residence-based tax system which means even if you are not living in South Africa, you may still owe tax in SA.

The South African Revenue Service (SARS) determines your residency by where your assets and family are based as well as the location of your permanent home, among other factors. There are two sets of criteria that you'll need to check your circumstances against. The first is the ordinary residence test. If you don't meet the criteria of this test, then you'll move on to the physical presence test.