[Question] There's still a lot of Eish in tax for me...

[Bernhard]

Hey All.

I have a few questions on payment of taxes.

I have tried looking through previous posts to find the answers but to no avail, and am trying to read up as much as I can on the subject from various sources.

My background.

I work for the military, so I am paid my basic salary and my career-incentive-pay by the government. This then makes up my standard montly salary from the gov.

I also own a small flat which I rent out, but am still paying off the bond with the bank and also pay the levies.

Do I fall under provisional tax if I am still paying off a bond and not making dividens off the "income" I recieve as rent?
As far as I can understand you only pay tax on the "profit" you make from renting out a place, say if the flat was paid off in full, or am i missunderstanding something?

Any advice would be helpfull.
Thanks

[Mike Simmonds]

Hi Bernhard, welcome

Yes, you do fall under Provisional Tax. Everyone always seems to think that their obligation to register only starts when they are making a profit! This is not only false but also they do themselves a great injustice, in your scenario, which is fairly common, you can expect to actually trade at a loss for a reasonable amount of time. That is the interest on your bond, rates and taxes, levies, insurance, repairs and maintenance etc, will actually be greater than the rental income. This still needs to be accounted for on your tax return and this loss is then accumulated and used against future earnings (profits).

[Dave A]

This still needs to be accounted for on your tax return and this loss is then accumulated and used against future earnings (profits).

Not as a natural person, though - I think. I thought carrying forward losses to the following tax period is reserved for incorporated entities.

For a natural* person, my understanding is the loss in one activity can be offset against the "profit" from another income stream and in the same tax year only, and in this case the loss from the flat investment would be offset against the salary earned from Bernhard's employment in the military.

Or have I got that wrong

*natural as in a real flesh and blood person, as opposed to a juristic person - just in case someone didn't know and was wondering what I was on about.

[Mike Simmonds]

As of 1 March 2004 Assessed Losses have been "Ring Fenced".

"Ring-fencing is a concept in South African income tax law. In essence, it is an anti-avoidance measure under which the expenditure incurred in conducting a trade is limited to the income of that trade. Any excess expenditure (assessed loss from a trade) is then carried forward and is only set off against any income derived from that trade in a subsequent year of assessment."

SARS prepared the "Guide on the Ring-Fencing of Assessed Losses Arising from Certain Trades Conducted by Individuals" in October 2010. It can be downloaded from their website.

[Dave A]

I stand corrected. My thanks Mike.

[Mike Simmonds]

Dave, although you may not have been correct in terms of the act itself, I have seen SARS actually offset the loss against other (normal) income. However for anyone to plan based on a potential 'mistake' on SARS' part, would be reckless.

[Bernhard]

Thanks for the relies, this advise really does help me loads!!

Thanks!!