Are the rates charged by landlords to their tenants zero-rated?
12 August 2015
Posted by: Author: SAIT Technical
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?
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.
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