Landlord SA tax return - management fee??

Owen2003

I am busy calculating my SA tax return. A friend who is also a landlord informs me he takes off 12.5% of his earnings as a management fee and it is even possible to backdate it!

I have not heard of this before - can anyone confirm if this is the case and if so how long can it be backdated for?

[Deleted User]

He takes 12.5% off his earnings and pays it to himself? 

If that is what he is doing he is understating his income for each and every year that he has done this. He has, in addition to paying less tax than he should have, filed incorrect returns. 

If he paid a bona fide agency, or alternative, that is fine. 

Think about it logically. He is claiming ‘his time’ as a management fee. Is he going to declare this additional  income? Doesn’t make sense. 

Owen2003

Yes thanks for giving me a third party opinion - it didn't seem right to me either (although I wanted it to be haha)

Jeremy535897

It gave me a good laugh though.

[Deleted User]

Jeremy535897 said:

It gave me a good laugh though.

Can’t even blame it on ‘pub talk’ as they’re not open. Credit to the op though, he asked for a second opinion.

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

It gave me a good laugh though.

Can’t even blame it on ‘pub talk’ as they’re not open. Credit to the op though, he asked for a second opinion.

Funnily enough, as I was emptying the dishwasher just now, I seem to recall something like this in the dim and distant past. It wasn't a case of tax evasion like this appears to be, but a reasoned argument. I think someone tried this on (but declaring the agent's fee as self employment and reducing his schedule A rental income). I don't know whether you remember investment income surcharge? It applied to rental income. Margaret Thatcher got rid of it early in her premiership.

Anyway, the court simply pointed out that a person cannot contract with himself or herself (Chitty on Contracts, page 1, because a contract has to be legally enforceable, and you can't get a court to enforce a contract against yourself), and therefore the investment income surcharge could not be reduced by this method. It's always a useful doctrine to remember when looking at complicated arrangements, as they can fall foul of this basic rule.

[Deleted User]

‘Investment Income Surcharge’ - JUST before my time. Don’t be alarming the op about historic marginal tax rates of 98%!

Jeremy535897

Perish the thought!

Voyager2002

[Deleted User] said:

He takes 12.5% off his earnings and pays it to himself? 

If that is what he is doing he is understating his income for each and every year that he has done this. He has, in addition to paying less tax than he should have, filed incorrect returns. 

If he paid a bona fide agency, or alternative, that is fine. 

Think about it logically. He is claiming ‘his time’ as a management fee. Is he going to declare this additional  income? Doesn’t make sense. 

He might be reducing his rental income and increasing his income from self-employment, in the hope of increasing the amount he is allowed to pay into his SIPP.

Jeremy535897

Voyager2002 said:

purdyoaten2 said:

He takes 12.5% off his earnings and pays it to himself? 

If that is what he is doing he is understating his income for each and every year that he has done this. He has, in addition to paying less tax than he should have, filed incorrect returns. 

If he paid a bona fide agency, or alternative, that is fine. 

Think about it logically. He is claiming ‘his time’ as a management fee. Is he going to declare this additional  income? Doesn’t make sense. 

He might be reducing his rental income and increasing his income from self-employment, in the hope of increasing the amount he is allowed to pay into his SIPP.

I explained above why this doesn't work. You can't hire yourself.

dctrgre

Voyager2002 said:

[Deleted User] said:

He takes 12.5% off his earnings and pays it to himself? 

If that is what he is doing he is understating his income for each and every year that he has done this. He has, in addition to paying less tax than he should have, filed incorrect returns. 

If he paid a bona fide agency, or alternative, that is fine. 

Think about it logically. He is claiming ‘his time’ as a management fee. Is he going to declare this additional  income? Doesn’t make sense. 

He might be reducing his rental income and increasing his income from self-employment, in the hope of increasing the amount he is allowed to pay into his SIPP.

Or calling it self-employment income and claiming trading allowance. Which would bring the word ‘evasion’ to mind.