Tax notes before you shack up with Airbnb

To make extra income, many people consider letting their property, or a portion of their property, during the festive season.

Online booking platforms are popular for this, for both letting over a short period or on an ongoing basis.

However, many people do not understand the tax implications of this.

Whether you let your property for one day or the whole year, the income must be declared to the SA Revenue Service (Sars). It also doesn't matter whether you let one room or your entire house, the income must be declared to Sars.

The rental income earned from letting your property must be declared on your annual tax return. However, expenses relating to the letting of the property can be used to reduce any tax that might be payable on the income.

This is best illustrated by means of an example:

• Property let for one week during the festive season
• Income received from rental: R10,000
• Expenses relating to the rental:
  • Online platform booking commission: R1,000; and
  • Cleaning services: R500
  • Total expenses: R1,500

“Profit” made on letting the property: R8,500 (that is, R10,000 minus R1,500)

You will pay tax on the R8,500 “profit” when you declare the income and expenses to Sars on your annual tax return.

You can use other expenses to reduce your “profit” and your tax payable:

• Bond interest (not the actual capital payments, only the interest paid. Your bank should be able to provide you with a statement of interest paid for the tax year);
• Gardening services;
• Rates and taxes;
• Advertising your property for rent;
• Homeowner's insurance;
• Security; and
• Repairs (note that improvements cannot be utilised, discussed further below).

If you are letting the house you live in for just a portion of the year, you will need to determine the above type of expenses for the entire year and apportion them for the period your property was let. You cannot use the expenses incurred when you were staying in your house for your own use.

If you have an extra property — that is, not the place you stay at — that you are trying to let and are advertising it as being available for rental but it takes a while to rent, the general rule is that you can deduct applicable expenses incurred during the time that the property is being advertised.

There is often confusion as to whether a cost incurred should be classed as a repair or an improvement. As stated above, it is only if the cost is a repair that the expense can be used to reduce the “profit” made on the rental. Every matter dealing with repairs/improvements needs to be considered on its own facts, but there are a couple of general rules that can assist in determining whether an expense is a repair or an improvement:

• If a new asset is created it is generally considered an improvement;
• If an asset has been damaged or has deteriorated and the expense relates to restoring the asset to its original state, it is generally considered a repair; and
• An addition to an asset would generally constitute an improvement.

If you are letting your primary residence there may be implications when you dispose of your property in terms of a reduction in the R2m primary residence exclusion that individuals are afforded upon sale of a primary residence.

In addition, if your taxable rental income exceeds R30,000 for the tax year you will need to become a provisional taxpayer and file provisional tax returns twice a year in addition to your annual tax return.

• Baines is a tax consultant at Mazars and author of 'How to Get a Sars Refund'