Airbnb tax implications

[frb]

Hi All,

So I am about to start running an apartment for airbnb, the apartment is fully financed and I've started to do some renovations on the apartment and purchasing items for the running of it as an airbnb.

So from a tax perspective it's not registered in a company and it's registered on my name as an individual.

A. I want to know what are some deductions I can claim against my income, I am aware of the below but is there any more that I am missing?

Deductions:
1. Interest incurred on the bond.
2. Levies
3. Rates and taxes
4. Incidentals and cleaning expenses

B. Can I deduct my renovation costs as a pre-trade expenditure as I am getting it ready for the airbnb?

C. The furniture that I previously owned I am leaving in the airbnb, is there any way I could sort deduct any expenses?

D. Can I deduct the new furniture purchased ? If so is this once off or is this a yearly allowance ?

E. It seems when I look at my estimated income vs expenses, I will be at a loss, as mentioned it's not registered in a company, is the loss ring fenced or can it be set off my salary? I'm assuming it's ring fenced, if it is ring fenced, can I continuously roll forward my losses year after year until I am profitable? Or is there a stipulation or time based limit ?

Thanks in advance.

Edit: Thanks for all the responses, duly noted. I guess got to seek the right answers from a professional. Appreciate the comments and opinions

 

[gracer]

@frb Get an accountant before SARS destroys you. Won't be too expensive and save you a lot in the long run.

 

[dpasek]

@gracer Absolutely. I had a rental property 8 years ago, and lost out on a R70k tax REBATE. Don't save cents now just to lose Rands later.

 

[fineagain73]

@frb Some good suggestions re getting advice. Any person giving you tax-related advice for a fee must be a registered tax practitioner with one of the many SARS recognised controlling bodies.

Re the furniture you are using, there can be a deemed value attached to it that can then be deducted.

An air bnb isn't at all complicated from a tax perspective. Getting advice in the start and at the same time how to treat income, expenses, dent repayment, wear and tear (the tax term for depreciation) rates for the various types of assets each year, and the provisional tax registration and implications so you understand the full picture. It may sound complicated so ask any question you are unsure of in different ways so you fully understand, but I can assure you it's not.

 

[kandrew]

@frb Find a Tax Practitioner/ Tax Technician on the SAIT website and use them. Everyone says ‘get an accountant’ but Tax professionals have waaaay more experience and they also know accounting because they have to.

 

[max_]

@frb I will say a few general things.

Expenses incurred in the production of income are likely tax deductable.

Assets under R7000 can be expensed in a single year, otherwise there are other rules. You should be able to find a wear and tear list on SARS website as a minimum deduction allowance but there might be different rules that can accelerate it.

Ring fencing as an individual should only apply if you are in the highest marginal tax bracket.

I suggest at a minimum you get an accountant to do your tax return since it'll probably save you in the long run.

 

[noeljack]

@frb See an accountant. Simple. You’ve already spent lots of money on the apartment. The cost of a qualified accountant will be a drop in the ocean, and will be tax deductible.

 

[wonderdove]

@frb Rentals are ring fenced as far as I remember, so you can only set it off against future profits from the rental.

And renovations should be deductible as they are done in the process of generating income

 

[kandrew]

@wonderdove Rentals aren’t ring fenced.

 

[mechanicusspiritus]

@frb Yeah, don't ask for advice on these things here. You will PROBABLY have to use an accountant anyway, since you're rich enough to afford it (and if you are, you're better off using one)

Ultimately, the biggest questions should rather be how this affects your own tax position, and whether it wouldn't be better to keep this in a company that you start. Several reasons, but one of the best includes ease of transfer (as you can just transfer the company, and can forego costs associated with transferring property)

Also... It'll be harder to attach the property if you obfuscate it enough... In case you get into legal issues.

 

[moni079]

@frb A) All related expenses with running the AirBnB under s11(a) of the ITA. Accounting Fees, advertising costs, small asset purchases etc.

B) No. You can only deduct improvements to residential buildings if you own 6 or more units (s13sex. ITA)

C) Yes you can claim depreciation (wear and tear) on the assets as part of your business as these are capital contributions.

D) Yes, depending on the value of the furniture. If it's less than R10k and does not belong to a set then you can reduce your income tax by the whole amount (Schedule 2 Practice Note 9) Otherwise you will have to depreciate it via the Wear and Tear tables over time in Schedule 2.

E) No you can only reduce income with expenses occurred in the production of that income. As these expenses were not made in the production of your salary or other income then therefore you cannot reduce that other income via these expenses.

I suggest that you get yourself an Accountant as SARS can be assholes regarding this stuff and if they query it then the Accountant will fight with SARS about it instead of you.

Disclosure: I am an Accountant that offers these services. Despite that, you really badly need an Accountant. The money you spend now will save you tons in the long run.

Edit: CA(SA)'s must all know tax and SAICA is a qualifying body with SARS, anyone that has an RA at the firm is automatically a tax practitioner.

 

[abubu1]

@frb Have you considered the risk vs return? My house is in Harties and I’ve considered Airbnb and moving but it just doesn’t make financial sense for me. Would be better to sell the place and put the money in to retail bonds and have much lower risk and less stress

 

[frb]

@abubu1 Honestly for me personally I've invested in stock market: some local, mostly foreign, I hold fixed income investments in SA, some crypto recently acquired, the only thing that made sense to me was to diversify by property.

In terms of returns from my research the area I'm looking at has been lucrative so I think it will be good. Not good enough to cover all my expenses but good enough to create a shortfall I can live with.