Tax and SARS knowledge base
Why can I not deduct bond repayments or registration fees?
Why can I not deduct bond repayments or registration fees?
Last reviewed:
Direct answer
You cannot treat the full monthly bond debit or the once-off costs of putting a bond in place as a rental deduction simply because the property earns rent. SARS allows bond interest as a possible rental expense, but says capital and private expenditure is not deductible from rental income. The capital portion of a bond repayment reduces what you owe to the lender. It does not pay the cost of earning rent for that year.
Bond-registration fees and similar borrowing costs have a capital character, but that does not make them deductible from rental income or automatically includable in CGT base cost. SARS's current ABC Guide on CGT for Individuals says borrowing costs, including bond-registration and bond-cancellation costs, are generally excluded from base cost. Keep the original records in the property file and obtain advice if a later disposal calculation is material.
What this means in practice
A bank debit can be deceptively simple: one payment may include interest, capital, charges and arrears. For rental reporting, do not use the total payment. Obtain the bank's annual interest certificate or loan statement, identify the interest for the assessment year, and preserve it with the rental schedule. If the loan funded more than one purpose, establish whether, and to what extent, the interest is linked to the rented property.
The same discipline applies when the property is acquired. Attorney accounts often contain conveyancing, transfer-duty, deeds-office, bond-registration and other items. They should not be copied into the ITR12 as a current rental cost without a specific supported basis. Keep each item separately identified for any future disposal calculation rather than assuming all acquisition-related charges receive the same CGT treatment.
Distinguish an amount spent to maintain the rental-producing property from an amount spent to acquire, improve or finance a lasting asset. SARS describes repairs and maintenance as work that restores original condition after damage or deterioration. An improvement creates a better asset and is not an immediate rental deduction. The classification follows the facts, not the name given to the charge.
Step-by-step
- Obtain a detailed annual loan statement.
Separate interest from capital. If the statement does not show a clear annual figure, ask the lender for supporting detail before completing the return.
- Trace the borrowing purpose.
Keep the purchase agreement, settlement statement and records showing how the loan funds were used. A personal refinancing or mixed-purpose loan may need an apportionment.
- Create two files.
Put annual rental income and revenue expenses in one schedule. Keep acquisition, financing and improvement records in a separate property file for later review.
- Check the property use.
A private home, a partly let home and a property unavailable for rental do not support the same interest claim. Record dates and use.
- Treat costs consistently.
Do not classify a bond-registration fee as a repair merely to obtain a current deduction. Preserve the original invoice and describe its actual purpose.
- Complete and review the current ITR12.
Enter only supported current rental items in the appropriate fields. Retain the schedule, ITR12 and ITA34 together.
Documents and records to keep
- Loan agreement, annual interest certificate and statements.
- Purchase agreement, conveyancer account and proof of settlement.
- Lease, rental ledger and property-use diary.
- Separate revenue-expense and capital-cost schedules.
- ITR12, ITA34 and correspondence with SARS.
Important limits and exceptions
Interest is not automatically deductible merely because a property is owned. The expense must be connected to earning the rental income, and private or capital amounts are not allowable. A loan used partly to buy the property and partly for a private purpose needs careful factual analysis. CGT base cost has its own statutory rules: SARS says borrowing costs, including bond-registration costs, are generally excluded.
Do not confuse a deposit, tenant repair recovery or insurance receipt with a bond item. Each has its own income-tax treatment. Obtain advice where there is a renovation, refinancing, joint ownership, a company or trust owner, or a substantial capital-loss or gain question.
When to get tailored advice
Get help before filing if the finance arrangement changed during the year, the property is partly private, the loan refinanced other debt, or the costs are large. TaxProof can prepare the document trail; a tax professional should decide a disputed revenue-capital classification.