Can you charge VAT on residential property?
Let’s get straight into it. There is no VAT on residential property. This is an exempt supply in terms of the VAT Act. However, one needs to be careful and correctly distinguish between residential and commercial letting.
The distinction between residential and commercial property is important because while residential accommodation is exempt, commercial accommodation attracts VAT at the standard rates. Also, certain rules apply where commercial accommodation is supplied for less or 28 days and where is supplied for more than 28 days. We will look at this later. First, let us define and distinguish between residential and commercial accommodation.
Residential accommodation:
Simply put, this is where you own a residential house that you let out, predominately used as a place of residence or abode of a natural person but excludes the supply of “commercial accommodation.” Where this is the case, there is no VAT applicable to your rental income. Also, you cannot claim input tax.
Commercial Accommodation:
This is the supply of such accommodation such as hotel, B&B, guest house, retirement home, frail care homes etc. It is clear that excludes a dwelling as defined under residential accommodation.
This kind of accommodation attracts VAT at the standard rates.
The 28-days rule:
It gets a bit interesting when the commercial stay is a bit longer.
Under commercial accommodation, if the stay is 28 days or less, then the full amount chargeable to the client is vatable at the full standard rate. In other words, the VAT charge is the standard rate multiplied by the full charge before VAT. For example, assuming that the full charge before VAT is R100 and the standard rate is 15% then the VAT charge would be equal to R100 x 15% and the full price plus VAT would be equal to R115.
If the stay is of an unbroken period of longer than 28days, then only 60% of the amount charged is deemed to be vatable. Using the example above, this would be R60 of the full price charges. This effectively means that the VAT rate drops to 9% (15% x 0.6)
Practicality:
You may need to get your accounting system to have this additional VAT rate for stays longer than 28 days (but of course, you need to remember that this is for an unbroken period of stay.)
Secondly, your VAT201 return will need to disclose the 60% and 40% separately because they are using a different tax rate. One needs to be careful with the 40% because it is not an exempt supply, which means it may not have a place on the VAT return.
This will now mean that reconciliations should be done and kept because an IT14SD reconciliation may be issued because the 40% may not necessarily be disclosed on the VAT return.
We must also point out that you will be able to still claim 100% on the input side because the 40% is not treated as an exempt supply.
Do you need more help regarding the VAT treatments of your business? Get in touch with us here or visit our website here.
Good morning.
I need a little help. ( I lie, I need a lot of help!)
I bought a piece of land (Smallholding of 1.3 Hectares) with the sole purpose of erecting mobile homes and renting them out furnished or unfurnished at an affordable price on a 1 year contract, renewable, but with a 1month notice and no deposit.
The idea of this started just after lockdown when so many people lost their jobs, their home, and in so many cases also their belongings. These people had to start over but would need the platform and environment to do so, where they can get on their feet with the minimum cost and obligation.
The land had already 1 mobile unit erected many years ago, with current tenants.
I purchased 2 more 2nd hand mobile units which are refurbished, complete with kitchens and bathrooms, electrical wiring and plumbing, which were delivered complete as plug and play units.
I developed the infrastructure by utilizing the existing borehole for domestic use (as there is no municipal supply), installing main pipelines, water tanks, pressure pumps and gas geysers etc. I also developed the infrastructure for the plumbing, installing sewerage lines, septic tanks, waste water pipeline, and French drains.
I install main electric cables from the municipal meter boxes to the mobile units, and install prepaid meters in all units. I furnished all the units with gas stoves, fridges, washing machines, microwave ovens, cutlery, crockery, small appliances like toasters etc, even curtains.
I issued each unit with a dustbin and supply rubbish removal on a weekly basis.
I have a permanent maintenance worker on site, which is responsible for supplying garden service and maintaining the common area, bush cutting, watering of plants and general maintenance.
For all the professional work, I made use of registered contractors and were issued with COCs for all the required trades.
My long term plan is to buy more units, as I can place 10 units with ample yard space and comfortable open common living areas.
I handle this projects as a business and will declare it as such, but as a sole proprietorship.
1. Do this fall under residential or commercial? I had great capital expenditure and applied to register for VAT, as my input VAT on the acquiring of the units, furnishing thereof and the development of the infrastructure came to a substantial amount and claiming the VAT could finance another unit.
2. Accounting wise, would the development of the infrastructure be capitalized? and if so, can it be depreciated?
3. Exterior finish of the units, like fences, and closing the openings between the unit and the ground with brickwork (Units are delivered on stilts), is it required to add these cost to each unit’s base cost, as the units are capitalized, and if so, what do i do when it is not possible to split some of these cost per unit. Bricks, sand, cement and stone came in bulk. The fence was erected both around the units and around common areas as one project with one cost, which make the split to specific units not possible.
4. Should the fence in a whole maybe form part of the infrastructure?
5. How should I handle all the small finishes, like bedding, curtain rails, curtains etc, small appliances like toasters etc. Surely this cant be capitalized? Can I expense this immediately?
I thank you in advance for your much needed advise
Hi Mathina,
can we set up a call to discuss this in detail?
My availability is her: https://meetings.hubspot.com/lazarus
The Units we stay in was sold to a company that is VAT registered. Now the new owners of the units that we stay in and rent from then want to charge us VAT because he is registered for VAT.
Is he allow to charge us VAT on our Rent monthly?
I spoke to my Tax Practitioner and he said it’s Exempt and must be declare like that.
I can’t find any articles that say 100 % that rental for private use even if the landlord are registered for VAT
we must pay 15 % on top of our rental.
Kind Regards
In terms of the VAT Act, Section 12 (c) and 12(f) sectional titles and residential dwellings are exempt from VAT.
Refer your landlord to this section of the Act.
You are more than welcome to refer them to us for consulting on this matter.
Good day , im renting a house,so im responsible for paying the sewerage and garbage every month,and the landlord pays the water bill.
Theres a 15% vat that needed to be added with all of the above,so my question is…
Do i as the tenant give the extra 15% on sewerage and garbage or do the landlord?
Good day,
You as the tenant are responsible for the VAt on the items you pay for.
Hi,
If the unit is being used as an office but it is a residential flat can the landlord charge VAT?
I would find out if the unit was converted (normally you apply for this.) into a business property and/or if it is registered as a business (as a going concern.)
I have our home (in my name) on Air bnb and this income along my own income (sole
Proprietor ) is just over R1mil. Do I need to register for vat and declare and pay 15% of my air bnb income to SARS?
Section 7 of the VAt act defines a taxable supply as any supply of goods and services made by a vendor in the course of furtherance of an enterprise carried out by them in SA, unless that supply is specifically exempted by the Act.
The provision of BnB can easily be viewed as a taxable supply that may require you to register for VAT.
Disclaimer: This is not a tax opinion. It is best to seek professional advice from your accountant or tax practitioners to ensure that you are complying with all tax laws and regulations.
Hi there, I have a more complex question:
Company A registered in SA (VAT Registered) buys an ERF in a residential estate in SA, develops said ERF for onward sale. Intention changes during development and ERF is now to be kept by Company A. Company B, which is UK registered and owned, wants to rent the property to house its employees doing remote work indefinitely. Business is allowed to be conducted from property as per HOA rules. 1. Is there VAT on this rental charge? 2. Can Company A claim back their VAT input from the development of the property?
Thanks in advance
Neil
Good day,
Would you be willing to get a proper VAT consultation at a fee?
Please email me: ne*******@ya***.uk
We are on it
VAT on a placement, once off amount. Normally 1 month rental.
Can die agency if they are VAT registered ask VAT on that amount from the owner.
Hi Greta,
Every business that is registered as a VAT vendor is required to collect VAT on all taxable supplies.
You may book a consultation with us should you need more help