This week’s reader question comes from a pensioner who owns two apartments, one of which he has decided to let out during and after the 2010 Fifa World Cup.
He lives in one and therefore regards it as his primary residence. It further appears that he has chosen to move into the other apartment and to let out the one which has served as his primary residence until now.
The reader says he has already received a deposit in respect of the rental (in December last year) and will receive further rental income during the current tax year.
Referring to the potential impact of Capital Gains Tax (CGT), he asks whether he needs to provide the South African Revenue Services (SARS) with a valuation in respect of what was initially his primary residence.
Other questions revolve around the declaration of the rental income already received and the income due.
Henry Hopkins, principal of Seeff Properties in George, says the provisions relating to CGT do not compel the taxpayer to provide SARS with a valuation before the asset is disposed of: "Only once a sale or alienation of the property takes place does the onus rest on the taxpayer to provide SARS with proof of how its base cost was calculated."
Hopkins says this cost can be proven not only by means of a valuation, but also, for example, by using the time-apportioned base cost calculation as provided for in the relevant legislation.
"Provision is also made that a primary residence will not simply lose its status as such for being subject to rental for a short period of time," Hopkins explains. "In fact a residence will still be treated as having been used for domestic purposes during any continuous period of absence if it was not let for more than five years.
"From the reader’s question, it appears that he will not be entering into a long term lease agreement. Therefore his apartment should still be regarded as his primary residence should he decide to sell it at a later time when he is again occupying it permanently."
Braam Swart from Braam Swart & Partners in George says the reader further wants to know whether he has to register as a provisional taxpayer in respect of the rental income he will now be earning.
"The provisions of the Income Tax Act provide that any taxpayer whose income from sources other than re-muneration exceeds a certain level, must apply to SARS for registration as a provisional taxpayer within 30 days after the date on which he or she qualified."
Swart says remuneration is defined as any amount of income that is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument pension, super-annuation allowance, retiring allowance or stipend, whether in cash or otherwise.
"Rental income above the threshold set by SARS falls outside of this definition and could thus compel our reader to register as a provisional taxpayer," adds Swart. "Provisional tax is not an additional form of tax, but just another way in which tax is paid over to SARS. It means that interim payments are made to SARS and the final tax liability is not only payable after the end of the tax year."
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Our weekly property experts: Henry Hopkins (left) and Braam Swart.
