Written for YourProperty

Although our Property Poser panel has previously touched on the scenario of a landlord being a VAT vendor, a few key points are highlighted again in light of this week’s reader question.

The reader says the family farm is owned by a trust that is registered for VAT (Value-Added Tax) and both she and her husband rent certain portions for their businesses.

Her husband is registered for VAT and the reader, who uses the farm to provide accommodation, has recently deregistered.

She has been informed that she can pay her rental to the trust, excluding the VAT portion, and that the trust will then only be liable to pay over the VAT on her husband’s portion.

Jacques Ehlers from Du Toit Strömbeck Attorneys in Port Elizabeth says the Value-Added Tax Act 89 of 1991 (as amended) sets out which persons (whether natural or juristic) must register as VAT vendors.

Ehlers says you are compelled, under the act, to register should you make taxable supplies in excess of R1 million (from 1 March 2009) in any 12-month period.

“A person may also choose to register voluntarily provided that the minimum threshold of R50 000 (from 1 March 2010) has been exceeded in the past 12 months.”

It is important to understand that the VAT system is driven by the so-called VAT vendor, says Ehlers. “Registered vendors have to provide tax invoices to customers for goods sold or services rendered, adding the VAT payable by the customer at the current rate of 14%.”

Ehlers says VAT vendors have to pay over VAT on a regular basis to the South African Revenue Services (SARS), subject to certain allowances for VAT paid over to other vendors.

Charlotte Vermaak from Chas Everitt in PE says therefore, in the reader’s instance, the use of the property by her and her husband is a VAT-able supply by the trust.

“The trust will charge VAT and has to pay it over, regardless of whether the tenants are registered or not. The invoice provided to her should thus include the VAT portion she has to pay over to the trust.”

In a comparable example, says Vermaak, people are liable to pay VAT on groceries, regardless of whether they are registered for VAT or not. “We pay the VAT because the shop owner is a vendor, who in turn has to account for the VAT amounts received.”

Vermaak says the reader’s husband could “claim” back the VAT paid over to the trust.

“Although not applicable to this situation, rental paid in respect of residential property for residential use is not subject to VAT, even if the landlord is registered as a vendor.”

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