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What's SARS' view on deposits relating to commercial accommodation?

by , 01 April 2014
If your company provides commercial accommodation to the general public, SARS may challenge the Vat treatment of deposits you receive. Since you can't afford to get this wrong, read on to find out how SARS views this issue.

Here's how SARS views deposits received for commercial accommodation

According to the experts at Practical Vat Loose Leaf Service, the best way to demonstrate how SARS views deposits relating to commercial accommodation is to give a practical example.

 

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Here's an example of how SARS treats deposits received for commercial accommodation

Let's say in terms of Tree Lodge's reservation policy Alf, the customer, pays an initial deposit (1/3) 30 days from booking date and the balance (2/3) is payable 30 days before he arrives at the specific lodge.

Tree Lodge's cancellation policy is as follows:

  • One to ten days before arrival date: 100% of the reservation value becomes a cancellation fee.
  • 11 to 30 days before arrival date: 50% of the reservation value becomes a cancellation fee.

Only in exceptional circumstances will Tree Lodge not charge a cancellation fee.

SARS contends that, in terms of Tree Lodge's reservation policy, as long as it receives amounts that become non-refundable, the receipt triggers the time of supply and this is the date on which Vat has to be accounted for.

The Practical Vat Loose Leaf Service says it appears that SARS is of the opinion that because in this case the deposit won't be refunded to the customer, the nature of the payment is consideration for a supply of services and isn't a deposit, which is normally excluded from the definition of 'consideration'.

In other words, SARS views Alf's deposit as a consideration as soon as he pays it. And this means there are Vat consequences.

Remember that Vat law defines a 'consideration' as any payment in money made or to be made in relation to a supply of goods or services (including deposits on returnable containers and Vat).

There you have it. Be careful in the case of deposits received for commercial accommodation, special Vat rules apply as we've explained.

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