VAT And Property
29 March 2010
Posted by: TaxFind™
VAT And Property
There are a number of VAT headaches for property developers that have only been partially addressed in this Budget
South Africa's National Treasury said during the Budget presentation that the VAT treatment of commercial and residential accommodation will be reviewed. Landlords of furnished properties have found themselves in the VAT net because of "definitional technicalities”.
In a summary of additional tax proposals for 2010/11, National Treasury said that "the supply of commercial accommodation is taxable at the rate of 14%, while the supply of residential accommodation is exempt. The supply of commercial accommodation (such as a motel or a hotel) usually consists of lodging together with domestic goods and services”.
It has "come to light that certain entities that supply exempt residential accommodation have (as a result of definitional technicalities) crossed over into supplying commercial accommodation”. National Treasury cites the example of student accommodation with furniture and fittings, without any services. "This supply marginally pushes this accommodation into the ambit of commercial accommodation, on which VAT must be charged” "It said that legislation may be introduced next year "to address these shortcomings.
The Finance Minister also proposed an amendment to the VAT Act to reduce the amount of the VAT adjustment required when a residential property developer temporarily leased a property before selling it. The purpose of the proposed amendment is to give a more equitable outcome for the developer.
With respect to the Minister though, the current legislation is adequate to deal with the issue. It is the manner in which the Commissioner applies the legislation in practice that needs to be addressed. The Commissioner merely needs to rule that he does not regard the temporary renting out of property as a change in purpose in dealing with the property on the part of the developer.
This will negate the need for a legislative change, and will give an equitable result for all concerned. A change in legislation is likely to be complex and should be avoided.
Source: By BDO and Realestateweb (Taxbreaks)