Offsetting tax loss...

[Merlin]

Hi everyone,

Here is my situation...

I rent. My rental cost is nominal for where I live, and I'm happy there.

I purchased a property, my first, in 2024. Thanks to good fortune and long-term planning, I was able to pay it off in short order. The access bond remains open.

I don't have any expenses to claim against the property at this point.

I retained the good tenant that lived there when I bought it. That rental income now covers the costs of my property and my rent in full, balancing out almost perfectly.

I renewed his lease earlier this year, prior to the tax return season, at which point SARS took a look at things on paper, declaring their view that I was in fact making a lovely profit, for which they nailed me a very healthy amount.

Given that I had already renewed the tenant's lease for another year, I've been able to fairly accurately predict what SARS will nail me with next year. I'm expecting around about a 30k hit.

My situation is changing, so I will likely not renew the lease further, and move in there myself.

With that context in mind, I have a fair amount of money tied up in a particular equity that has been sitting in the red for a long time now. The dividends balance out, but I don't want to sell the equity, as I'll lose out on the capital loss. As it so happens, that equity has been hovering around the 30k (negative) mark for ages.

If I were to sell the shares, thereby incurring an approximate 30k loss, would that be offset against the rental income hit from SARS come the end of the tax year?

My thinking here is that I cannot escape the tax hit, however maybe I can 'justify' things by offsetting the tax hit with the sale of the negative shares. The benefit being that I at least then have that capital 'free' to invest elsewhere.

Is this a daft idea, or something worth pursuing?

Thank you.

 

[yogidabear]

If its an equity you should have a CGT loss and that would be carried forward not offset. Think so anyway.

Having said that if the equity is something you want to sell, then do so if it has no chance of recouping your investment.

 

[Merlin]

If its an equity you should have a CGT loss and that would be carried forward not offset. Think so anyway.

Having said that if the equity is something you want to sell, then do so if it has no chance of recouping your investment.

Thank you, Yogidabear.

Much appreciated.

I'm confident in the equity long-term. I just wondered if this was an opportunity to divest short-term, killing two birds with one stone.

 

[Tomtomtom]

Won't work, CGT losses can only be used against other capital gains.

An assessed capital loss sustained during a year of assessment cannot be set off against a person’s ordinary income of a revenue nature. An assessed capital loss, therefore, neither decreases a person’s taxable income nor does it increase a person’s assessed loss of a revenue nature. Such an assessed capital loss is, therefore, ring-fenced and can be set off only against capital gains arising during future years of assessment.

Assessed capital loss | South African Revenue Service

A taxable capital gain reduces a locally derived assessed loss. ‘Taxable income’ means the aggregate of— the amount remaining after deducting from the income

www.sars.gov.za

 

[Tomtomtom]

I don't have any expenses to claim against the property at this point.

I'm assuming you mean expenses other than the ones you are already deducting from the income?

Permissible expenses that may be deducted from rental income could include:

• rates and taxes
• bond interest
• advertisements
• agency fees of estate agents
• insurance (only homeowner’s insurance and not insurance for household contents or bond insurance)
• garden services
• repairs in respect of the area let and
• security and property levies

Tax on rental income | South African Revenue Service

If an individual rents out a property (generally residential accommodation) and receives rental income, the amount received will be subject to income tax.

www.sars.gov.za

 

[Tomtomtom]

My thinking here is that I cannot escape the tax hit, however maybe I can 'justify' things by offsetting the tax hit with the sale of the negative shares. The benefit being that I at least then have that capital 'free' to invest elsewhere.

The one way you can generate an income tax win here is if you sell this investment and buy it again (or something else) inside an RA.

If you are at a 40% marginal rate, for every R 100k you put in an RA, you will get R 40k back from SARS.

 

[RedViking]

Consider seeing an accountant. They have magic fingers.

 

[Merlin]

Thank you, everyone.

I do not have an RA or other retirement fund at this point.

All the property costs (levies, rates, rental agent fees, etc.) are absolutely provided to my tax guy every year. I do not have any maintenance, repair, or upgrade costs at this point.

 

[Cray]

Thank you, everyone.

I do not have an RA or other retirement fund at this point.

All the property costs (levies, rates, rental agent fees, etc.) are absolutely provided to my tax guy every year. I do not have any maintenance, repair, or upgrade costs at this point.

I would advise speaking to a specialist investment advisor. One of the biggest things mine does is focus on ways to save on tax. The government wants you to save for retirement so they incentivise it by giving you tax breaks.

 

[Merlin]

I would advise speaking to a specialist investment advisor. One of the biggest things mine does is focus on ways to save on tax. The government wants you to save for retirement so they incentivise it by giving you tax breaks.

Thanks, Cray.

I spoke to an investment advisor a while back. After taking a couple weeks to review things, he came back to me stating that there was nothing that he could for me as I was managing things OK by myself. I took it as a compliment, mentally noting it as a curiosity.

With the constant threats to retirement funds by the government, and because I've been pushing to find an emigration opportunity, I've been reluctant to pursue fixed retirement schemes.

 

[Cray]

Thanks, Cray.

I spoke to an investment advisor a while back. After taking a couple weeks to review things, he came back to me stating that there was nothing that he could for me as I was managing things OK by myself. I took it as a compliment, mentally noting it as a curiosity.

With the constant threats to retirement funds by the government, and because I've been pushing to find an emigration opportunity, I've been reluctant to pursue fixed retirement schemes.

Okay fair enough regarding emmigration. With regards to investment advisors, their abilities and usefullness vary wildly. I have had two before my current one and they were both bloody useless. But yeah, if you change your mind about emigration, try and approach an advisor with the purpose of trying to reduce your tax burden.

 

[Tomtomtom]

With the constant threats to retirement funds by the government, and because I've been pushing to find an emigration opportunity, I've been reluctant to pursue fixed retirement schemes.

It's a personal decision but it's the elephant in the room since you're asking how to save on tax. The RA is the most powerful way to do that.

The way I think of it is that the cost of retaining discretionary freedom is the up-front tax deduction forgone, which is anything up to ~R 150k per annum, plus the compounded tax not paid on returns within the RA, which over 10+ years can easily end up even larger.

 

[chrisc]

If you have a capital loss for more than 2 years, you can expect a thorough audit from SARS

They will demand all documents and can decide to disallow certain items, without providing a reason

When I rented houses, I included every possible expense. Two years in a row I included a gate motor valued at R7500. SARS queried this and I explained that the first gate motor had been stolen. They wanted the SAPS case number and a SAPS report

I now spend the money on Kruger Rands. I don't buy these from a dealer as they want your life history in addition to the money

 

[A3@MBB]

Since you will live on the property going forward, why don't you spend the rental income on the property with improvements?

 

[HocusPocusFM]

another option to consider, is up the bond on the property (bank can do an evaluation on what current market value), take that cash out and invest it in an RA... if you have escalated the tenants rent, should cover the additional bond amount.

Not sure how SARS would view that

 

[Merlin]

Thank you, everyone.

I know that I'm losing out without a retirement fund. I have just felt such unease with the cretins in government for so long now. It's a constant fear of meddling in everyone's retirements, with nothing any of us can/could do about it.

My property rental currently covers all costs relating to my property, and my own rent. This does mean that I'm usually able to put a fair amount of cash away every month, either into a Money Market account, or shares of my choosing, and once per year, my TFSA.

I'm hoping to put a deposit down on a second property towards the middle of next year, barring some capital expenditure involved in equipping my move into my current property. The second property will purely be a rental unit. The thinking is that a property portfolio in a few years' time will pave the way towards funding my retirement, rather than a pure RA-type retirement income.

 

[Cray]

Thank you, everyone.

I know that I'm losing out without a retirement fund. I have just felt such unease with the cretins in government for so long now. It's a constant fear of meddling in everyone's retirements, with nothing any of us can/could do about it.

My property rental currently covers all costs relating to my property, and my own rent. This does mean that I'm usually able to put a fair amount of cash away every month, either into a Money Market account, or shares of my choosing, and once per year, my TFSA.

I'm hoping to put a deposit down on a second property towards the middle of next year, barring some capital expenditure involved in equipping my move into my current property. The second property will purely be a rental unit. The thinking is that a property portfolio in a few years' time will pave the way towards funding my retirement, rather than a pure RA-type retirement income.

Well anyway, kudos for paying off your bond so quickly. I was able to do something similar a few years back and it makes a massive difference. And while it sucks having to pay extra to the tax man, it's also a sign that you are in a better place financially.

 

[Merlin]

Well anyway, kudos for paying off your bond so quickly. I was able to do something similar a few years back and it makes a massive difference. And while it sucks having to pay extra to the tax man, it's also a sign that you are in a better place financially.

Thanks, Cray.

I'm very proud of paying it off so soon too.

I made it more than four decades through life without ever getting myself into debt. Taking on a bond was a major mental hurdle for me.

 

[Cray]

Thanks, Cray.

I'm very proud of paying it off so soon too.

I made it more than four decades through life without ever getting myself into debt. Taking on a bond was a major mental hurdle for me.

I felt exactly the same getting my bond, I hate being in debt with a passion so did everything possible to pay it off as soon as I could (still have my access bond open with about R130 in it just in case though).

 

[zerocool2009]

Why dont you buy more property ?

Debt is only a mindset.

I started off buying 1, then it became a passion (hobby)

Reset your bond back to 20 years, pull money out, and buy your next place cash