September 3 2025 16:15
If you have not used your full South African Revenue Service (SARS) interest tax exemption, real estate investment trust (Reit) distributions cannot be applied towards this exemption. Reits are property groups which pay out a minimum of 75% of their income out as dividends each financial year. Reits have traditionally been formed so that the landlords can avoid paying tax on their dividends.
The taxation of Reit distributions operates differently from the tax treatment of regular interest or dividends. The distributions you receive from a Reit cannot be used to offset the annual exemption of R23 800 for individuals under 65, or R34 500 for those 65 and older.
The reason for this is the unique tax structure afforded to Reits by Sars, which operates on a ‘conduit’ or ‘flow-through’ principle. Unlike a typical company that first pays corporate income tax on its profits before distributing dividends, a Reit is generally not subject to corporate income tax on the distributions it makes to its shareholders. As said, the tax liability passes directly from the Reit to you, the individual investor.
The income is taxed at your personal level and not at the company level. This is a critical difference from standard company dividends, which are exempt from income tax in the hands of the individual investor, because the company has already paid corporate tax, as well as the current 20% dividends withholding tax levied at the company level.
When you receive your IT3(b) tax certificate from your financial institution, you will see that Reit distributions are reported separately from interest and dividend income. Sars has a specific source code (4238) for distributions from Reits, so that it is correctly allocated as taxable income on your tax return. Local interest income has its own source code (4201), which is linked to the automatic application of the interest exemption.
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