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Are you charging Vat correctly on your rental income?

by , 06 November 2013
For business owners who own their business premises and rent out a portion of the property to other businesses, there's always confusion about whether or not to charge Vat on the rental income. If you're one such business owner, take note of these Vat rules.

If you rent out a property for residential accommodation – such as flats, apartments, houses, etc. – the rent you receive from these is exempt from Vat.
 
But the commercial rental income is subject to Vat, where the income exceeds the R1 million threshold. This means you'll have to register for Vat and charge Vat on the rental.
 
What about mixed use buildings (i.e. buildings which comprise residential rentals and also commercial rentals)? For example, a six storey building consisting of shops and offices on the first two floors and flats on the remaining four floors.

The Practical Vat Loose Leaf says, the commercial side of mixed-use buildings attracts Vat. Again, where the rental income for the commercial section exceeds the R1 million threshold, you'll have to register for Vat and charge Vat on the rental for that section only. The commercial section is where the shops and offices are located.
 
Here's how to handle the input tax deductions on your commercial rental income
 
Your input tax deduction will be limited to the expenses for the commercial section. Should you have expenses relating to the whole building, you'll only be entitled to claim a portion of the input tax.
 
Here's a quick recap of the general rules on exactly what input tax can be claimed for the different kinds of supply.
 
Intended use How much input tax can be claimed?
Taxable supplies Full amount of input tax
Exempt supplies Can't claim any input tax
Private use Can't claim any input tax
Mixed use, i.e. taxable and exempt Can only claim the portion of the input tax that relates to the taxable use
 
Keep this table handy. It'll help ensure you never pay Vat wrong when it comes to your rental income. 


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Comments
1 comments


kelebogile 2016-03-03 15:37:44

im renting a flat thy now charge me vat for water and electricity i hav tried to ask y no explanation cos i dont understand how this things works

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