I have in past articles warned of the dangers of registering for VAT purposes in order to claim a refund of VAT charged to you, for example by a developer, or to claim a "deemed" VAT refund when you are buying property you will use as your home or rent to someone else for that purpose. Essentially, the VAT legislation does not allow you to claim a refund in this instance.
The question I have been asked recently is, what if the property is to be used as holiday accommodation?
The VAT legislation contains specific rules to distinguish between accommodation to be used for "dwelling" purposes (no VAT claim), a "commercial rental establishment" (potential claim) and "residential rental establishment" (potential partial claim).
If you intend running a "commercial rental establishment", you may claim a refund of VAT charged to you at purchase and you are required to charge VAT to your customers if your turnover is more than R150 000 a year or you registered voluntarily for the tax.
You run a "commercial rental establishment" if the accommodation satisfies the following criteria:
* It is a hotel, motel, boarding house, hostel or similar establishment in which lodging is regularly or normally provided for five or more persons at a daily, weekly, monthly or other periodic charge; or
* It is a house, flat, or room which is regularly or systematically let or held for residential accommodation for continuous periods not exceeding 45 days in respect of each occupant, and the total annual receipts from such letting exceed R24 000 or are expected to do so; or
* It is in any house, flat, room, caravan, houseboat or camping site which is an asset in a business undertaking of letting more than five such houses, flats etc for continuous periods of less than 45 days in respect of each occupant, which produces more than R24 000 a year; or
* It is a hospital, nursing home, hospice, convalescent or rest home.
If you run such an establishment for the benefit of your employees it would not qualify.
The requirements that distinguish the commercial rental establishment from the situation where you buy a holiday home and let it out when you aren't there are probably the "more than five" requirement or the "more than R24 000" requirement.
If the property falls into the "residential rental establishment" category, the amount of input tax you may claim will be limited as will the output tax you may charge.
You run a residential rental establishment if the accommodation is of the nature of the first or last ones set out under the commercial rental establishment criteria, but 70 percent or more of the people are expected to stay for 45 days or more.
The VAT you must charge on the rental and the provision of goods and services if you run a residential rental establishment will be chargeable on only 60 percent of the charge you make. Consequently, the refund you may claim when you purchase the property may be limited to 60 percent of the VAT charged to you. For a commercial rental establishment you must add VAT to the full charge, unless a person stays for more than 45 days, in which case you must charge VAT on 60 percent of the charge from the 46th day.