One of my subscribers, Anton, wrote in with a query about last week’s bulletin, which mentioned that any rental income you earn during the 2010 World Cup may incur a hefty tax bill (and push you as the lessor into another tax bracket altogether). 

Anton wanted to know if he chose to do this, would he indeed pay higher tax on his year’s salary as a whole, or just on the income he earned from the rental.

You won’t get away with it

The good news, Anton, is that SARS won’t push your whole year’s earnings into a new tax bracket (as you might have surmised from last week’s bulletin), just because of one month’s rental income. In fact, you’ll pay tax on your regular income, including the extra rental income, as normal.

I checked in with our tax consultants, who are pretty sure SARS isn’t going to be drafting new tax rules for the 2010 World Cup period, either. So the basic tax rules will hold fast. But don’t expect to get away with the extra rental income, unnoticed. SARS is going to be watching for it.

Save it for a rainy day – or, erm, a tax deadline

The big issue with World Cup rental earnings, is that you’ll only declare the income after the end of the 2010 tax year. And unless you’re a provisional taxpayer (forced to make your first tax payment by 31 August 2010), then chances are you’ll have spent your extra rental income by the time the end of the 2010 tax year rolls by and your tax payments are due… Eeek!
So if you’re planning to rent out your home during the World Cup, make sure you set aside some of those earnings, to provide for taxes. Otherwise, you’ll be paying penalties on top of your tax bill.

You can breathe easy if you decide to sell

Anton wasn’t the only one with questions about the 2010 rentals. My colleague Sarah-Jane raised a concern.

 “What happens to your CGT when you try to sell the flat that you rented out during the World Cup?” she asked. “I mean, the major prerequisite for the CGT exclusion, is that the property was used for domestic purposes, and not used in trade. Doesn’t renting count as a trade? It generates income…”

Sarah-Jane was onto something. So I started asking my friendly tax experts for answers.  And they figure that as long as this sort of rental activity is limited to a once-off experience, SARS won’t consider the property as one involved in trade.

Thank goodness! Because otherwise, it means my friend Nicole would to lose out on the R1.5 million CGT exclusion when she did decide to sell her flat…

So, you can breathe easy if you’re renting during the world cup. The leasing out of your property won’t have an impact on your CGT rights when you do eventually sell your property.

Kind Regards

Fulvia Becatti
Managing Editor: Practical Tax Handbook and Practical Vat Handbook