South Africa: Income tax treatment of rental deposits

South Africa: Income tax treatment of rental deposits

The South African Revenue Services (SARS) recently issued draft guidance—Interpretation Note, (IN) “Taxation of the receipt of deposits”—for determining when rental deposits are to be regarded as “gross income.”


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A provision of South Africa’s income tax law defines the term “gross income” as including receipts or accruals received by a taxpayer “on his own behalf for his own benefit.”

In terms of the draft guidance, there may be a distinction (depending on the agreement) as to whether the lessor receives rental deposits in the position of a “trustee” and thus may have an obligation to refund the deposit to the lessee upon termination of the lease. Since the deposit is not the lessor’s money and the lessor is contractually liable to refund the rental deposit at the time it is received, the amount would not be received by the lessor “on his own behalf for his own benefit” and thus would not be included in the lessor’s gross income.

Thus, one question to address is whether the deposit is received by the lessor for its own benefit and on its own behalf. Retaining tenant deposits in a separate bank account does not automatically negate the risk that the amounts received as deposits could constitute gross income.

Rental deposits also need to be distinguished from up-front rental payments or premiums, which generally are not refundable and relate to the use of the lessor’s property and generally constitute rental income that may be included as gross income.

Read an August 2020 report [PDF 352 KB] prepared by the KPMG member firm in South Africa

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