A taxpayer has a second property that his kids stay in for the entire tax year of assessment. They didn't pay any rental income but the taxpayer paid the levies, rates and taxes. He made a rental loss for the year as there was no rental income. SARS has declined his rental loss expenses. Kindly advise.
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
You have not indicated what tax position was taken when the deductions were claimed and against which trade it was claimed. It appears that the taxpayer was not carrying on a trade in respect of this property and that would be the reason why SARS disallowed, and correctly so, the deductions. SARS may also have imposed an understatement penalty. Section 20A doesn’t apply, because there was no trade, but if there was and there was rental income, section 20A(2)(b)(iii) would have applied and the taxpayer should have indicated that to SARS.