A taxpayer has a private company that is registered as a VAT vendor. The company owns a house in an estate. They want to supply "commercial accommodation" for a period in excess of 28 days to a family on an ongoing basis (indefinite).
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act Sections dealing with supplies of accommodation Section 12(c) of the VAT Act exempts from VAT the supply of a dwelling under an agreement for the letting and hiring thereof. A “dwelling” is defined in section 1(1) of the VAT Act as any building, premises, structure, or any other place, or any part thereof, used predominantly as a place of residence or abode of any natural person or which is intended for used predominantly as a place of residence or abode of any natural person. A dwelling includes fixtures and fittings belonging thereto and enjoyed therewith. The definition of a dwelling specifically excludes property used in the supply of commercial accommodation. “Commercial accommodation” is defined in section 1(1) of the VAT Act as lodging or board and lodging, together with domestic goods or services, in any house, flat, apartment, room, hotel, motel, inn, guest house, boarding house, residential establishment, holiday accommodation unit, chalet, tent, caravan, camping site, house boat, or similar establishment, which is regularly or systematically supplied. It excludes a dwelling supplied in terms of an agreement for the letting or hiring thereof. Sections dealing with composite supplies Section 8(15) of the VAT Act determines that where a single charge is made for a supply of goods or services in circumstances where if separate amounts were charged, a portion of the supply would be standard rated and a portion zero-rated, the supply is deemed to be separate supplies for VAT purposes (i.e. VAT must be levied at the standard on the standard rated portion and zero-rated on the zero-rated portion).
Section 10(22) of the VAT Act determines that where a taxable supply is not the only matter to which a consideration relates the supply is deemed to be for such part of the consideration that is properly attributable to the taxable supply. In other words, output tax is only payable on the taxable element of the supply. The SARS Guide for Entertainment, Accommodation and Catering (“the Guide”) Paragraph 2 under Paragraph 6.1.2. of the Guide reads as follows: “No apportionment of the rental is required in respect of the furniture and fittings if the furniture and fittings are supplied together with a dwelling under a lease agreement and included in the agreed rental charge. Therefore, the entire rental charge for the supply of a fully or partially furnished dwelling under the lease agreement will be exempt from VAT. However, if the lessor is a vendor, and other goods or services are supplied separately by that lessor for a separate consideration to the tenant, the separate supply may be subject to VAT. For example, if the lessor is registered for VAT in respect of a garden service business and provides the garden services to the tenant and the charge for this service is not included in the monthly rent payments which are payable under the lease agreement for the dwelling, the charge will attract VAT at the standard rate. Application of the principles Based on the information supplied it is common cause that the accommodation will not be supplied regularly or systematically. Based on the information supplied the supply would constitute a supply of accommodation in a dwelling which is exempt from VAT. The entire rental charge would be exempt from VAT, unless a separate fee is charged for the domestic goods and services, in which case only the charge for the domestic goods and services will be subject to VAT.