To complete this article, read also:

• Taxing rental income

• Rental tax deductions

Question:
I bought a property with the intent of renting it out.

What initial amounts that I paid for can I claim to reduce my base tax amount (e.g. the 15 percent deposit, the transfer costs or the bond registration costs)?

Answer:
The following items can typically be used for purposes of the base cost of a fixed property:

• The purchase price of the property.

• The cost of acquisition of the property (e.g. the attorney?s fees, estate agent?s commission, etc.).

• Expenditure actually incurred in respect of the valuation of the asset for the purpose of determining a capital gain or capital loss in respect of the asset (e.g. the cost of obtaining a valuation of the property on 1 October 2001).

• Remuneration of a surveyor, valuator, auctioneer, accountant, broker, agent, consultant or legal advisor for services rendered.

• The transfer costs, which include the cost of obtaining a certificate of compliance for electrical installation and an entomologist?s certificate (required in KwaZulu-Natal and the Cape) for the purposes of effecting transfer (However, repairs necessitated by such inspections will not qualify unless the property was used wholly and exclusively for business purposes). Since it is necessary to cancel a bond before transfer can take place, it is accepted that bond cancellation fees also qualify as a transfer cost.

• Advertising costs to find a seller or to find a buyer.

So, to answer your question; the 15 percent deposit is part of the purchase price, so definitely part of the base cost. The transfer costs are part of the costs that can?t be avoided in the purchase of a new property so they are also included. The costs of registering a new bond would not apply if you bought the property cash (yes, I know this doesn?t happen often), so it is not seen as part of the base cost.

Going forward, any costs associated with generating a rental income can be deducted from any income received for the property. This will be an income tax deduction and not of a capital nature so cannot be added to the base cost.

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