FAQ - 22 September 2015
22 September 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. What is the VAT impact where a landlord on-charges municipal rates to a tenant?
Q: A company is leasing floor space for its offices from a landlord. The landlord on-charges the municipal rates to the company monthly, including VAT at 14%. Municipal rates are charged at zero-rate to the landlord, but is it correct for the landlord to on-charge these costs at a VAT rate of 14%?
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 (landlord) 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 - it is really only making one
supply and the fact that an amount is separately bill 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.
2. What is the CGT impact on the sale of a
previously inherited property?
Q: What is the tax liability where the selling price of a property which
is R850 000.00 and the base cost was R450 000, taking into account the couple
inherited the property and the municipal value was R450 000. The property was
sold during the 2015 tax year and it was a secondary house.
A: Base cost - It is not clear
from whom (or how) you inherited the property. Assuming you inherited it from a
deceased person, para 40(1A)(b) of the 8th Schedule would apply. It states
"If any asset of a
deceased person is treated as having been disposed (of from a deceased estate)
as contemplated in subparagraph (1) and is transferred directly to…an heir or
legatee of the person, the heir or legatee must be treated as having acquired
that asset at a cost equal to the market value of that asset as at the date of
death of that deceased person, which cost must be treated as an amount of
expenditure actually incurred for the purposes of paragraph 20 (1) (a).”
So the base cost is
the market value at the date of death of the deceased person.
Whether the capital gain should be split
Under paragraph 14
of the Eighth Schedule a disposal of an asset by a spouse married in community
of property is treated as having been made –
- in equal shares if the asset forms part of the joint estate; and
- solely by the spouse making the disposal if the asset does not form part of the joint estate.
Thus if the capital gain or loss forms part of the joint estate it must be split equally between the spouses. But if it is excluded from the joint estate it must be recognised only by the spouse making the disposal
Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.