If you're planning to buy, sell or rent a building, you must comply with the Vat Act.
Here's how Vat works with buildings
#1: Commercial buildings: This includes offices, factories and warehouses.
According to the Practical Vat Handbook, if you own a commercial building and receive rental income, you'll have to register for Vat when your rental income exceeds R300 000 over a 12 month period (this amount is expected to increase to R1 million in the future).
Once you're registered, you'll have to charge Vat on the rental and pay such Vat over to SARS as output tax. You show the rental income, as any other taxable supply, at blocks 1 and 4 on the Vat return.
#2: Residential buildings: This includes flats and apartments.
The rent received from flats let as residences are exempt from Vat. This means if you own a residential building where you receive rent exclusively from residential tenants, you may not register for Vat, irrespective of your income.
#3: A mixed use building is where a building comprises commercial and residential units. For example, a six-floor building comprises shops and offices on the first two floors and flats on the other four floors.
This means where the rental income for the commercial section, for example, the shops and offices, exceeds R1 million, you'll have to register for Vat and charge Vat on the rental for the commercial section only.
#4: Buildings used for commercial accommodation: This is accommodation in holiday flats, holiday houses, hotel rooms, guesthouses, caravan parks, or lodging/rooms in homes for the aged, children, physically or mentally handicapped persons and lodging in a hospice.
If the income from the above exceeds R60 000, but not R1 million, as the owner of such accommodation, you may choose to register for Vat purposes and will have to charge Vat on income and pay Vat over to SARS as output tax.
Knowing the implications of Vat for buildings will ensure you comply with the Vat Act if you own, rent, sell or buy a building.