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Should you charge Vat on residential property and on holiday/residential accommodation?

by , 30 March 2015
Today we're addressing two situations and how they're connected to Vat after receiving several questions on this particular subject. Should one's company charge Vat on residential property that they rent to tenannts? And can Vat be charged on holiday/residential accommodation?

Let's look at these and offer answers that will hopefully provide you with the information you need.

Vat and property: What you need to know

Let's take as an example a company registered for Vat and also a property rental company that rents out property to tenants for commercial and residential properties.

In this case, we'll answer these two questions:

1. Must a company charge Vat on residential property that it rents out to tenants?
2. When a company that purchases residential property to rent out to tenants, claim back the Vat as an input tax?

Here are the answers...
1. For the first question, our answer is no The company can't charge Vat on the rental of residential property – it's exempt under Vat law.

2. Secondly, the company can't claim the input tax on purchases of residential property. Again, because it will be used for exempt from Vat supplies, no input is allowed.
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When it comes to the charged Vat on holiday/residential accommodation, we have the example of a company that purchased holiday accommodation to rent out as holiday accommodation. It claimed the input tax on the purchase of the property, and charged Vat on the rentals to the people using the accommodation. It now wants to rent the property to a tenant on a one year lease. Must it charge Vat on the rental to the tenant?

Our answer in this case is an affirmative one. Since the property qualifies as commercial accommodation, the company must charge Vat on the rental.

However, keep in mind that  you must reduce the value on which Vat is to be calculated. So, say you'll rent out the property for R10 000 per month.

 To calculate the Vat, you'll have to do this:
R10 000 x 60% x 14% = R840 Vat.

So your tenant will pay R10 840 total.

Note: If you're going to rent it out to tenants who use the house as their dwelling, you must pay back the input tax which you claimed when you bought the property. De-register as a Vat vendor and don't charge Vat for the rental.

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