Investing in a property or buying your dream home is an exciting and rewarding experience. But one of the not-so-exciting, but crucial parts of any property purchase is the calculation and payment of one or more different kinds of tax. It is recommended that buyers receive proper advice on which taxes are payable and how much before the purchase, otherwise buying your dream home or investing in a property can become a very unrewarding and financially crippling experience.
So, what is included in property-related taxes? These taxes include municipal rates and charges for refuse and sewerage. We will discuss these taxes in more detail below:
Most South African property owners must pay municipal rates, which are based on the market value of the property concerned. The calculation of municipal rates was changed in March 2004, when the Government Municipal Property Rates Bill came into play.
Previously, rural areas were charged a higher percentage than the wealthier areas, seeing as lower-income households effectively subsidised wealthier ones. Now, rates are levied at a common percentage (about 1%) irrespective of the value of the property. However, municipalities may levy different rates for different types of properties such as residential, commercial etc. When it comes to sectional title schemes, rates are applied to the entire scheme and are divided among the individual owners.
So how does it work? Your municipality will send you a valuation notice, which states the official value of your property. Using this valuation notice, subtract the specified “rate-free” amount (around R50 000), then multiply this net figure with the percentage of the municipal rate to calculate the annual amount payable. Divide this by 12 to calculate your monthly payment.
Just like municipal rates, refuse charges vary from place to place. For example, in Cape Town, there are two parts to the refuse charge:
The first is calculated by subtracting R50 000 from the valuation of the property (same as with municipal rates) and multiplying the result by 0.038%.
The second part is a charge of R38.60 per month for a 240-litre bin with wheels. If your property is valued at less than R100 000, you pay half of the amount mentioned above, and if your property is valued at less than R50 000, you will receive a bin free of charge.
Just as is the case with refuse charges, sewerage is also commonly charged in two parts:
Firstly, a fixed charge of up to R38.00, depending on the value of your property.
Secondly, a variable charge according to your water consumption. See the table below:
|Charge Per ‘000 Litres
|0 – 4,200 litres
|4,201 – 14,000 litres
|14,001 – 35,000 litres
So, to break it down a little, if you consumed 200 000 litres in a year, you would pay R650.00 plus the fixed rate.
Before purchasing a property, make sure to consult an expert in order to determine how much you will have to pay in property taxes, and make sure to bring this into your budget before purchasing.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)