I currently live with my parents, on their property. I am looking at purchasing an apartment for R650 000 and renting it out. I have been given the option of paying for this in cash and then paying my family back at their low bond rate of 6.5% (prime -2%).
The property will be rented out for R5500. The expenses on the property (rates and levys) are R1800. So the rental income would be R3700pm. This R3700 as well as another R4300 will be paid monthly to my parents (total R8000pm).
Would I need to list this R3700 as rental income and thus pay tax on this? Would the fact that the money is then paid to my parents mean that they should be paying the tax? Would we both need to pay tax on this money?
Extra Information: My Salary Income: ~R250000pa Parents Salary Income: ~R700000pa.
Secondary Question: How would tax deductions on the tax interest work? Would this again only be for my parents to handle?
To answer both your questions at the same time, yes you would need to pay tax and declare the rental income, but you can deduct the interest paid as well before declaring the income. You would also need to register as a provisional taxpayer as you are earning non-salary income of over R20 000 per annum. Your parents would need to do the same: