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.

Frequently asked questions

Can a sole proprietor generally depreciate a residential rental building?

South African tax law does not allow general depreciation for residential buildings. A limited residential-unit allowance under section 13sex applies only in narrow qualifying circumstances, not to a typical single rental dwelling.

What rental expenses can still be deducted?

Under section 11(a) and related provisions, revenue expenses incurred in producing rental income — such as proportionate bond interest, rates, levies, insurance, non-capital repairs, agent fees and related costs — may be deductible if the usual tests are met.

How should major improvements be treated?

Major renovations or improvements are generally not claimed as repairs; they are often capitalised and may affect the CGT base cost instead.

What records matter for rental claims?

Keep invoices, contracts, payment evidence and utility bills, and apportion costs where the property or assets are partly used for private purposes.