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Is the provision of retirement accommodation to the elderly an exempt supply?

09 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I have a client that provide retirement cottages to the elderly. They receive payment for these cottages and the cottages remain the property of the client. They are registered as a VAT Vendor. I've recently taken over the client and noticed that they have been completing their VAT201 returns with this income as 60% taxable as it is accommodation that exceeds 45 days. However as this is long term residential accommodation, shouldn't this qualify as exempt in terms of the VAT act?

A: "Commercial accommodation", is defined as follows (section 1 of the VAT Act):

• Accommodation including the supply of domestic goods and services, in any house, flat, apartment, room, hotel, motel, inn, guesthouse, boarding house, residential establishment, holiday accommodation unit, chalet, tent, caravan, camping site, houseboat or similar establishment, which is regularly or systematically let out and where the total annual receipts from the letting thereof is reasonably expected to exceed R60 000 per annum:

• Accommodation in a home for the aged, children, physically or mentally handicapped persons; and

• A hospice.

Once it has been established that the enterprise is supplying commercial accommodation, the next issue is to establish the value of such supply. In this regard there is now a single test, will the person stay in the accommodation for more than 28 days? If not, the supply will be taxed in full. If however, the person will stay for more than 28 days, then only 60% of the value of the supply of domestic goods and services will be subject to VAT (s 10 of the VAT Act).

The term "domestic goods and services" has been expanded to include the provision of meals and the right to use furniture and fittings where they are supplied as part of the right of occupation in an all-inclusive charge.

Thus, in summary, where accommodation is being supplied, the first issue is to determine whether or not such accommodation constitutes "commercial accommodation". If it does, then the vendor must determine whether the resident will be staying for an unbroken period exceeding 28 days. If not, the all-inclusive charge will be subject to VAT whereas if the stay exceeds 28 days only 60% of the all-inclusive charge will be subject to VAT.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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