VAT review for furnished property rentals

South Africa's National Treasury said on Wednesday that the VAT treatment of commercial and residential accommodation will be reviewed. Landlords of furnished properties have found themselves in the Value Added Tax (VAT) net because of "definitional technicalities". VAT is levied at 14%, and is largely an administrative headache for smaller business operators

In a summary of additional tax proposals for 2010/11, National Treasury said: "The supply of commercial accommodation is taxable at the rate of 14%, while the supply of residential accommodation is exempt. The supply of commercial accommodation (such as a motel or a hotel) usually consists of lodging together with domestic goods and services."

It has "come to light that certain entities that supply exempt residential accommodation have (as a result of definitional technicalities) crossed over into supplying commercial accommodation".

National Treasury cites the example of student accommodation with furniture and fittings, without any services. "This supply marginally pushes this accommodation into the ambit of commercial accommodation, on which VAT must be charged."

It said legislation may be introduced next year "to address these shortcomings".

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