Rental income is added to your other taxable income and taxed at your marginal rate, after deducting allowable expenses. Only the interest portion of a bond repayment is deductible, not the capital. Residential rental is exempt from VAT, which means no VAT is charged on the rent and no input VAT can be claimed on the property's costs.
Landlords also become provisional taxpayers, which surprises people who assumed rental income was something they would sort out once a year.
The basic calculation
Net rental income = gross rent − allowable expenses
That net figure is added to your salary, business income and other income, and taxed at your marginal rate — up to 45% for individuals.
Worked example. A property earning R14,500 a month.
| Annual | |
|---|---|
| Gross rental income | R174,000 |
| Bond interest | (R96,000) |
| Rates and taxes | (R14,400) |
| Levies | (R21,600) |
| Insurance | (R7,200) |
| Repairs and maintenance | (R11,000) |
| Agent's commission | (R13,920) |
| Net rental income | R9,880 |
At a 39% marginal rate, tax of roughly R3,853.
Note how thin the margin is once interest is deducted. Many South African rental properties produce a small taxable profit or a loss in the early years, and a substantial profit only once the bond is largely repaid.
What you can deduct
Deductible:
Bond interest — the interest portion only
Rates and municipal charges
Levies
Insurance on the property
Repairs and maintenance
Managing agent's commission
Advertising for tenants
Security
Garden and pool services where you pay them
Accounting fees relating to the rental
Bank charges on the rental account
Not deductible:
The capital portion of the bond repayment
Improvements — capital in nature
Transfer duty and bond registration costs on acquisition — these form part of the base cost for CGT
Your own time
Expenses relating to a period when the property was not available for letting
Repairs vs improvements
The most commonly disputed distinction, and the one SARS looks at first.
A repair restores the property to its previous condition. Deductible now.
An improvement makes it better than it was. Capital, so not deductible — it increases the base cost for capital gains tax instead.
| Repair — deductible | Improvement — capital |
|---|---|
| Fixing a leaking roof | Replacing the roof with a better one |
| Repainting existing walls | Adding a room |
| Replacing a broken geyser with an equivalent | Installing solar and a battery system |
| Fixing a section of boundary wall | Building a new wall where none existed |
| Servicing the pool pump | Building the pool |
| Replacing worn carpets with similar | Replacing carpets with imported hardwood |
A useful test: would a reasonable person say you fixed something, or that you upgraded it?
Keep the invoices and, ideally, before-and-after photographs for anything substantial. This is a routine verification item.
You are now a provisional taxpayer
Rental income is not remuneration and has no PAYE deducted.
The exemption is narrow: you are exempt only if you carry on no business AND your taxable income either does not exceed R99,000, or consists only of interest, dividends, rental and foreign income not exceeding R30,000 for the 2026 tax year.
R30,000 of net rental income is one modest flat. Most landlords are over it.
That means two provisional payments a year — 31 August and 28 February — plus the annual return. See what is provisional tax.
Losses and ring-fencing
Where expenses exceed rental income, you make a rental loss — common in the early years of a bonded property.
In principle a rental loss can be set off against your other income, reducing your overall tax.
But ring-fencing rules can apply. Section 20A can ring-fence losses from certain trades carried on by individuals in the top tax bracket, where the trade has made losses in a defined pattern of years. Where ring-fencing applies, the loss can only be set off against future income from that same trade rather than against your salary.
If you are a high earner with a consistently loss-making rental property, get this reviewed. It is a specific and technical provision, and assuming the loss offsets your salary is exactly the assumption that gets adjusted on assessment.
VAT: residential rental is exempt
Residential letting is an exempt supply. That means:
No VAT is charged on residential rent
No input VAT can be claimed on the property's costs — rates, levies, repairs, agent's commission
Residential rental does not count towards the R2.3 million VAT registration threshold
Commercial property is different. Letting commercial property is a taxable supply, so VAT is charged on the rent, input VAT is claimable on the costs, and the income counts towards the registration threshold.
Mixed portfolios need apportionment. A landlord with both residential and commercial property makes both exempt and taxable supplies, and overheads that cannot be attributed to one or the other must be apportioned — normally on a turnover basis.
Owning in a company or a trust
The three routes tax differently.
| Individual | Company | Trust | |
|---|---|---|---|
| Income tax rate | Marginal, up to 45% | 27% | 45% flat |
| Effective CGT rate | Up to 18% | 21.6% | 36% |
| Primary residence exclusion | R3,000,000 | None | None |
| Annual CGT exclusion | R50,000 | None | None |
| Compliance cost | Low | R12,000–R40,000+ a year | Significant |
For a single property, individual ownership is usually simplest and often cheapest, particularly given the CGT differences.
Companies and trusts become more attractive for larger portfolios, for estate planning, and where income is retained rather than drawn — but the CGT rates are materially worse, and the compliance cost is real.
Take advice before deciding, and before transferring an existing property. A transfer is a disposal for CGT and attracts transfer duty.
Selling: capital gains tax
The gain on sale is subject to CGT.
For individuals, 2026/27:
Maximum effective CGT rate: 18%
Annual exclusion: R50,000 of gain
Primary residence exclusion: R3,000,000 — but only on your primary residence, not on an investment property
Base cost includes the purchase price, transfer duty, conveyancing fees, bond registration costs and the cost of any improvements — which is why keeping those invoices matters even though improvements are not deductible against income.
Timing point: the CGT event arises when the sale agreement is signed, not when transfer is registered at the Deeds Office. Signing in February puts the gain in that tax year even if transfer only happens in May.
Frequently asked questions
How is rental income taxed in South Africa? It is added to your other taxable income and taxed at your marginal rate, after deducting allowable expenses such as bond interest, rates, levies, insurance, repairs and agent's commission.
Can I deduct my bond repayment from rental income? Only the interest portion. The capital portion of the repayment is not deductible, because it reduces a liability rather than being an expense.
What is the difference between a repair and an improvement? A repair restores the property to its previous condition and is deductible immediately. An improvement makes it better than it was, is capital in nature, and instead increases the base cost used to calculate capital gains tax on sale.
Do I pay VAT on rental income? Not on residential rental, which is an exempt supply — so no VAT is charged and no input VAT can be claimed on the property's costs. Commercial property letting is a taxable supply, so VAT is charged and input VAT is claimable.
Am I a provisional taxpayer if I have a rental property? Almost certainly. The exemption only applies where you carry on no business and your taxable income either does not exceed R99,000 or consists only of interest, dividends, rental and foreign income under R30,000 for the 2026 tax year.
Can I deduct a rental loss against my salary? Often yes, but section 20A ring-fencing can apply to individuals in the top tax bracket where a trade has made losses in a defined pattern of years. Where it applies, the loss can only be set off against future income from the same trade. Get this reviewed if you are a high earner with a consistently loss-making property.
Should I buy property in a company or in my own name? For a single property, individual ownership is usually simplest and often cheapest, largely because of the R3 million primary residence exclusion, the R50,000 annual exclusion and the lower 18% effective CGT rate. Companies and trusts become more attractive for larger portfolios and estate planning, but carry higher CGT rates and real compliance cost.
What can I not deduct against rental income? The capital portion of bond repayments, improvements, transfer duty and bond registration costs on acquisition, your own time, and expenses relating to periods when the property was not available for letting.
Property income, properly accounted for
Landlords consistently under-claim on repairs and over-claim on improvements, miss the provisional tax obligation entirely, and discover the ring-fencing rules on assessment.
Smartbook handles rental income within your annual return, splits repairs from improvements defensibly, tracks base cost for the eventual sale, and prepares both provisional tax returns.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Figures are for the 2026/27 tax year. Section 20A ring-fencing and ownership structuring are fact-specific — take advice before relying on a general position. Worked examples are illustrative.
Primary sources: SARS — Budget 2026 Frequently Asked Questions · SARS — Capital Gains Tax · SARS — Value-Added Tax · SARS — Tax Rates