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Thread: Tax on interest used for renting

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    Tax on interest used for renting

    My elderly parents are selling their house in order to move into a retirement complex. They want put the money that they get for their house into a fixed deposit and use the interest to rent a unit in a complex as they do not want to buy. This concerns me as the interest on their investment will of course be taxable. Will they get any tax breaks on it as they're using it to pay rent in a retirement complex ?

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    Site Caretaker Dave A's Avatar
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    The first x amount of interest is not taxable income. I'm just not sure what the value is.

    Also, with evidence pointing to interest rates declining, they might consider going for government bonds instead of fixed deposits. This would open the door to capital appreciation with the current direction of the interest cycle.
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    The interest that they will earn is fully taxable (depending on the type of investment, but very few tax-free investment vehicles available lately?). If they are over 65 years, the first R30 000 is exempt (R21 000 if under 65) as from 1/3/2009. The taxable income threshold as from 1/3/2009 is R84 200 if over 65 and R54 200 if under 65 years old.

    They will not be able to deduct the interest earned from the rental paid in the complex - the disqualifying factor in the Act - "not in the production of income"

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    just me duncan drennan's Avatar
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    If the first R30k is exempt and the tax threshold is R84.2k, then if the only income is from interest bearing accounts, you can earn up to R114.2k interest without paying tax (if over 65). If you split the investments up (or have the account in their joint name) so that each of your parents earn R114.2k interest, that is up to R228.4k tax free income.

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    Your reasoning is correct only if they are married in community of property - then the income will be split 50/50. If not, each spouse will be taxable on whatever investment is in his/her respective name.

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