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[FAQ] VAT registration of a Homeowners Association
- 04 March 2021
- VAT
- Christo Theron
Background
Is a Homeowners Association (“HOA”) obliged to register as a VAT vendor if it sells electricity to its homeowners (in addition to the levies), where the turnover of such sales exceeds R 1 million in a period of 12 months?
Answer
The VAT Act
Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services made by a vendor in the course or furtherance of the VAT enterprise carried on by the vendor. VAT is imposed at the standard rate of (currently 15%), unless the supply qualifies to be supplied at the zero-rate in terms of section 11 of the VAT Act or is exempt from VAT in terms of section 12 of the VAT Act.
“Goods” is defined in section 1(1) of the VAT Act to specifically include electricity.
“Services” is defined in section 1(1) of the VAT Act as anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage. It excludes a supply of goods.
Section 12(f)(iv) of the VAT Act classifies as an exempt supply the supply of any service to any of its members in the course of the management of various categories of persons (including HOAs) where the Commissioner for SARS is satisfied that that such person has been formed solely for the purpose of managing the collective interests of residential property use or ownership of all its members.
Application of the principles
It is doubtful whether the sale of electricity can be held to be a supply “in the course of the management of the” HOA. In the event that the above could be argued successfully, the exemption contained in section 12(f)(iv) of the VAT Act only applies in respect of the supply of services.
The supply of electricity is a supply of goods; hence the supply of electricity cannot be supplied exempt from VAT in terms of section 12(f)(iv) of the VAT Act.
If the annual value of the supply of electricity therefore exceeds R1 million, the HOA would be required to register as a VAT vendor.
Webinar Commentary
Refer to webinar commentary on the Risks and Rewards of VAT governance here.