Does VAT apply to your residential or commercial property rental income?
VAT is exempt on residential property rental income
VAT is not chargeable by the supplier on any residential property rental income, regardless of whether the owner/landlord/agent/developer/speculator is a VAT vendor! This only applies to rental income (not sales) and does not include rentals for commercial accommodation (hotels or guest houses), industrial or agricultural property leases.
Renting out residential accommodation is what is known as an "exempt supply", which means that such rentals do not attract VAT. This applies whether or not you are a vendor for VAT purposes.
However, the commission charged by the agent managing the property is not part of the rent, even if such fee is deducted from any rent collected - it is a service rendered, and is therefore subject to VAT at the standard rate.
Owners using agents to take care of their properties must check your contract with your managing agent carefully, ensuring whether the percentage commission charged is inclusive of VAT or not.
In the case of commercial property (shops, factories, offices, etc), the supply thereof on a rental basis is not exempt, and accordingly VAT at 14% must be charged.
Likewise, commercial accommodation (hotels, holiday flats, bed-and-breakfasts, etc.) will be subject to VAT at the standard rate, as will be the cost of any ancillary services such as cleaning, maintenance, use of telephones, television (including satellite services), meals, and laundry.
The requirement to levy VAT includes lodging in a hospice, home for the aged, and facilities caring for the mentally or physically handicapped, unless such lodgings are provided by a non-profit organisation.
This article originally appeared in Property Power 11th Edition Magazine. To order your copy at the discounted price of R120 click here.
