Can my company earn the rental from property that I own?
Let’s say that a person owns a rental property and also a company.
Can the company charge the rental as if it were the owner and be taxed on the net rental income rather than the owner being taxed?
The answer lies in one of the anti-avoidance sections in the Income Tax Act.
s7(7) is a difficult read because of the clutter, so I have simply deleted the words which are not relevant to this example, but have not changed any of the words.
S7(7) If by reason of any donation, settlement or other disposition made by any person (hereinafter referred to as the donor)—
(a) the donor’s right to receive any amount by way of rent in respect of any immovable property is made over to any other person or to a third party for that other person’s benefit in such manner that the donor remains the owner of the said property;
any such rent as is received by the said other person and which would otherwise, but for the said donation, settlement or other disposition, have been received by the donor, shall be deemed to have been received by the donor.
So, there it is. If it’s person that owns the property, the net rental is taxed in thsat person’s hands.
Note that s7(7) refers to a person and not to a company.
It would therefore seem that, if the property owner is a company, provided the objective is not to utilise an assessed loss in another company, such an arrangement whereby the owning company allows a person, or another company to benefit from the rent, this is allowed. See s103(2)(a)(A)(aa)
3 comments
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Hi Derek thanks for clarifying.
If I may ask a follow-up question:
Let’s say a person works out of ZA for longer than 182 days, and 60 consecutive days per financial year. Does the person get taxed on rental income (if the rental income is a second source of income) ?
Kind regards
Eric
Hi Eric,
Yes, for sure. You need to read this article https://www.harbourassociates.co.za/seo-blog/tax-residence-the-full-picture/
Thanks Derek for the simple to understand explanation.