Can a Sole Proprietor Claim Depreciation on a Rental Property? A Guide to SA Tax Rules

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Can a Sole Proprietor Claim Depreciation on a Rental Property? A Guide to SA Tax Rules

• 26 July 2025
• Individuals Tax
• The Tax Faculty

This article is based on tax law for the year ending 29 February 2026.

Question:

A sole proprietor owns a separate residential property which is rented out. They are seeking to determine whether "depreciation" can be claimed as a deduction against rental income, and, if so, what rate applies and how the base cost is determined.

Answer:

The Problem / Facts

A sole proprietor owns a separate residential property which is rented out. They are seeking to determine whether "depreciation" can be claimed as a deduction against rental income, and, if so, what rate applies and how the base cost is determined.

Tax Issues and Relevant Sections of Legislation

• General deductibility of expenses – Section 11(a) of the Income Tax Act No 58 of 1962 (general deduction formula).
• Capital vs revenue nature of expenditure – distinction under Section 11(a) proviso and tax principles.
• Building capital allowances – Section 13sex of the ITA regarding residential unit deductions.
• Definition of trade – Section 1(1) of the ITA clarifies that rental activity can constitute trade.

Applicable Law & Analysis

• Capital allowance on the building (structure)

South African tax law does not allow general depreciation for residential buildings. Under Section 13sex, a deduction of 5% per annum over 20 years applies only if:

• At least five new and unused residential units are owned,
• Used solely for rental trade

 Deductible revenue expenses

As a sole proprietor, the following are deductible under Section 11(a) if incurred in producing income and not of a capital nature:

• Mortgage bond interest (proportionate to rental period).
• Municipal rates and taxes.
• Levies (for sectional-title units).
• Insurance premiums.
• Repairs and maintenance (non-capital in nature) under Section 11(d).
• Agent's fees and advertising costs.
• Gardening, cleaning, security if directly related to the rental activity.
• Legal fees to protect rental income (Section 11(c)) such as eviction costs

 Renewable energy installations

Under Section 12B, certain renewable-energy assets (e.g. solar PV systems installed at rental property) qualify for accelerated allowances:

• 100% in the year of assessment for assets under 1 MW, or phased over three years for assets acquired after 1 March 2023

Determining base cost for allowances

• For movable assets (Section 11(e)/12B): the base cost is the actual cost of acquisition and installation.
• For building allowances (if ever applicable under 13sex): the base cost is the cost of the building structure itself, excluding land. If land and building were purchased together, a reasonable apportionment (e.g. via valuation) must be performed.

Practical Notes

• Keep meticulous records: invoices, contracts, payment evidence, utility bills.
• Apportion use or cost where assets or property are used partially for personal purposes.
• For major renovations or improvements, these cannot be claimed as repairs and may instead be capitalised for CGT base cost.
• Consider professional tax advice if the property qualifies under rare circumstances for Section 13sex, or if you intend to invest in multiple new units or renewable energy.

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