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Own a building or rent out accommodation for commercial or private purposes? Find out how Vat rules apply to you

by , 26 June 2013
If you own a building or rent out accommodation for commercial or private purposes, different Vat rules apply. Know what rate at which to charge Vat and what rental is exempt from it to avoid miscalculations, under or over payments and the inevitable SARS penalties that'll follow...

While South Africa's listed property sector might have declined by just over 5% for the week that ended on 21 June, you still have to play by the rules and pay your Vat requirements.

After all, if there's one thing SARS doesn't tolerate its ignorance of the law. You will be punished severely with hefty penalties if you miscalculate Vat on accommodation.

Here's what to do to ensure this doesn't happen to you.

According to The Practical Vat Loose Leaf Service, when considering Vat on accommodation, it's important to distinguish the different types of income relating to that accommodation. This includes:

  • Rental income;
  • Sale of properties for accommodation; and
  • Commercial accommodation.

Here's how you can apply Vat rules for accommodation

Vat rule#1: Rental of a dwelling is exempt from Vat

If you rent out a property for residential accommodation such as flats, apartments and houses, the rental you receive is exempt from Vat.

Remember, residential rental income is a completely exempt supply. If you earn money from renting out property for residential accommodation, don't register for Vat, irrespective of your income.

Vat rule#2: The commercial side of mixed-use buildings attracts Vat

Sometimes a building comprises commercial and residential units. For example, a six storey building consists of shops and offices on the first two floors and flats on the remaining four floors.

This means, 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.

'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,' says the Loose Leaf.

Here are the general rules on exactly what input tax can be claimed for the different kinds of supply

  • For taxable supplies, you'll be allowed to claim the full amount of input tax.
  • For exempt supplies, you can't claim any input tax.
  • For private use, you can't claim any input tax.
  • For mixed use, for example taxable and taxable exempt supplies, you'll only be allowed to claim the portion of the input tax that relates to the taxable use.

Well there you have it. The vat rules that apply to accommodation, ensure you apply them correctly to avoid fines.

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