Khadija Ally - Clarity On Vat For Residential Property Developers2018-11-27 A vendor that changes the use of goods from a wholly or partly taxable purpose to a wholly non - taxable purpose is deemed to make a taxable supply in the course or furtherance of that vendor's enterprise. In this regard, developers that applied their residential property inventory for residential letting purposes due to economic factors (where the properties could not be sold) became liable to make an output tax adjustment under section 18(1) of the Value-Added Tax Act, 1991 (the VAT Act).
Section 18B of the VAT Act came into operation on 10 January 2012 to provide relief to residential property developers by allowing them to temporarily let their residential units (held for sale) for a period of up to 36 months before the VAT under the change in use provisions became payable. The relief was due to expire on 1 January 2015, but was subsequently extended to 1 January 2018 when it ceased to apply. The South African Revenue Service (SARS) issued Binding General Ruling No. 48 (BGR 48) on the 25 July 2018, which provides clarity on the VAT treatment of residential properties consisting of dwellings which were developed for the purposes of sale but were subsequently temporarily let by residential property developers. The BGR 48 further provides clarification for residential property developers following the cessation of relief under section 18B of the VAT Act. BGR 48 provides a general dispensation to residential property developers who temporarily let residential properties held for sale and provides that:
As section 18B expired on 31 December 2017, any dwelling that is temporarily let from 1 January 2018 no longer qualifies for the relief. Although this BGR provides much needed clarity, it would have been ideal if the ruling was issued at the time that section 18B expired. For those residential property developers who accounted for the change of use adjustment in January 2018 when section 18B expired, this would in all likelihood have affected their cashflow in that period as the residential property would still be on hand but there would have been a VAT liability due to SARS. Another concerned not addressed in BGR is the change in VAT rate from 14% to 15% and how that would impact the change of use calculation. T 060 976 8436 E: khadija.ally@kpmg.co.za |
Khadija Ally - Clarity On Vat For Residential Property Developers
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