In my last article I spoke about the fact that the VAT treatment differs for different uses of immoveable property, but I left the “commercial accommodation” aspect for today’s article. The holidays are a good time to address this issue as it looks at various types of ‘holiday accommodation’ and whether there is a need to register for VAT, charge VAT to clients and whether you can claim VAT charged to you.
Firstly, however, it is important to understand that there are specific VAT rules which distinguish between accommodation to be used exclusively for ‘dwelling’ (residential) purposes – (no VAT) and accommodation that falls withing the category of ‘commercial accommodation’ (potential VAT implications). It is important to understand that a ’dwelling’ (a place of residence or abode of any natural person) specifically excludes a property that is operated as “commercial accommodation” and “commercial accommodation” specifically excludes any property that is used as a ‘dwelling’.
Secondly, if you intend to run an establishment that constitutes ‘commercial accommodation’, you may (voluntarily) register the business for VAT if your turnover from the ‘commercial accommodation’ activities (i.e. from making taxable supplies) is, or is likely to be, more than R120 000 over a 12-month period. If the turnover is less than this figure then you will not be considered to be conducting a VAT enterprise. Once registered for VAT you may claim a refund of any VAT charged to you when you purchased the property (or a deemed VAT amount)- see my last article and claim a refund of VAT charged to you on VAT invoices for costs incurred to run the business. You will, of course also be required to charge VAT to your clientele.
It should be noted that you don’t have to register for VAT when the turnover reaches R120 000 in a 12-month period, but you may choose to. You are only obliged to register for VAT when the turnover exceeds or is likely to exceed R1mn in a 12-month period.
So, how do you know if you run an establishment that constitutes ‘commercial accommodation’?
To qualify, the accommodation must be:
- A lodging or board and lodging, together with domestic goods and services, which is regularly or systematically supplied in any
- guest house;
- boarding house;
- residential establishment;
- holiday accommodation unit;
- camping site;
- or similar establishment; or
- lodging or board and lodging in a home for the aged, children, physically or mentally handicapped persons; or
- lodging or board and lodging in a hospice;
(I will not deal with these last two in this article).
The first list is clearly very broad and some of the types of accommodation on the list, like hotel, motel, inn and guest house seem to be quite obviously what you would expect as being ‘commercial accommodation’. However, some of the other types of accommodation do not quite so obviously fall within what you might generally consider to be commercial accommodation.
So, you need to remember that if, for example, you are going to be away for a couple of weeks and decide to rent out your own home (which is usually a dwelling) whilst you are away over the holidays, it probably won’t qualify as ‘commercial accommodation’ for VAT purposes, as a dwelling is specifically excluded from the term for VAT purposes and a once- off arrangement won’t change this. However, if you rent out a ‘granny flat’ or room within your home regularly, for short term holiday lets, that business may fall within the term and if the total rental exceeds R120 000 you may be able to register for VAT. (Do, however, bear in mind the implications this may have when you sell the house- see my prior article)
Similarly, at first sight, it may appear that if you rent your holiday house/flat/caravan out over the holiday season (and the total rental exceeds R120 000) it may qualify as ‘commercial accommodation’ with the relevant VAT implications. But you need to firstly ask yourself whether it is an ad hoc rental or do you regularly or systematically rent it out. And even if you do regularly and systematically rent out the property, you then need to be able to confirm that you also supply “domestic goods and services” to your clients. These comprise any goods or services provided when supplying “commercial accommodation”, including:
- cleaning and maintenance;
- electricity, gas, air conditioning or heating;
- a telephone, television set, radio or other similar article;
- furniture and other fittings;
- nursing services; OR
If you supply any one or more of these items with the accommodation you satisfy this requirement. You are probably thinking that it is unlikely that holiday accommodation could be supplied without at least one of these – furniture, water and electricity being the obvious ones, but consider the supply of an un-serviced plot for camping, without any of the items. Thus, it is possible, albeit unusual, to supply short-term accommodation regularly and systematically (i.e. not a dwelling) without it being ‘commercial accommodation’ for VAT purposes.
The next thing to be aware of is the position where you have established that you are providing ‘commercial accommodation’, in that it satisfies all the requirements, but that it is rented out to the same client for an all-in charge for an unbroken period of more than 28 days. In this instance it is seen as being more ‘residential’ (like a residential hotel or boarding house or lodging) and the consideration for the domestic goods and services is deemed to be 60% of the total charge and it is only on this amount that the VAT must be charged. Similarly, you may claim VAT on the goods and services supplied to you as such domestic goods and services. VAT may not be charged on the 40% balance.
Finally, you may be wondering if these rules apply to accommodation provided to employees or in respect of ‘domestic goods and services’ provided to students in public school or e.g at a technikon or university or college residence. The answer is: “no, as long as the accommodation is provided by the employer or by the school, technikon, university or college”. In these instances, there is a VAT exemption.
Clearly, the VAT implications on renting out holiday accommodation may not be as simple as it may seems, so take care to ensure you get it right.
2 thoughts on “How the VAT works for holiday accommodation”
Hi…Most residential homes that are rented for long periods to the same tenant , and in all cases will be rented with electricity that is charged separately and recovered from the tenant.
Will that mean that entire rental supply is no longer entirely exempt from vat ?
Thank you for this question. The ‘domestic goods and services’ question is a difficult one to navigate. In the instance you cite in your question, though, the residential home is clearly being used as a ‘dwelling’ by the tenant i.e. ‘predominantly a place of residence or abode of any natural person …..including fixtures and fittings belonging thereto and enjoyed therewith.’ The supply of such a ‘dwelling’ in terms of a lease is exempt from VAT and excluded from the ‘commercial accommodation’ definition. The more than 28 days ‘domestic goods and services’ aspect only applies where there is ‘commercial accommodation’ (generally temporary and regularly and systematically supplied) and the relevant ‘domestic goods and services’ are supplied as part of an ‘all-inclusive’ charge. Thus, if you are renting a home to a tenant on a long-term basis and charge separately for the electricity, even if the rental exceeds R1mn in any 12 month period, you will not be required to charge VAT.