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Are the rates charged by landlords to their tenants zero-rated?

12 August 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: The SARS directive for municipalities is specific that VAT is zero-rated, however landlords now claim that VAT is applicable when they charge their tenants assessment rates. Is this correct?

A: Municipalities are vendors and therefore make taxable supplies.  It is true that a "municipal rate” (as defined in section 1(1) of the Value-Added Tax Act) levied on "rateable property” of an "owner” is zero rated – refer to section 11(2)(w).

The supply of the service is therefore by the municipality to the owner of the property and not to the tenant. If the landlord then "on-charges” this (the municipal rate) to the tenant, output tax must be levied at 14% (section 7(1)(a)). In other words, the landlord is not making the zero-rated supply.  The landlord is really only making one supply and the fact that an amount is separately billed and termed a recovery of rates does not change this. 

If other municipal charges are recovered the value-added tax consequences would depend on whether or not the landlord acts as an agent for the tenant.  In that instance the recovery would be tax neutral in the hands of the landlord. 

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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