Dear Vat vendor,

Vat Law tells us that if you rent accommodation as a residence, then your entire activity is exempt from Vat. 

But what about if you rent accommodation in the form of a guest house or a B&B or holiday apartment (or similar) or even a camping site? Is the fee you pay subject to Vat?  Because, really, you’re using residential accommodation – even though it may only be for a short period. 

Vat Law makes a distinction when it comes to accommodation and what should be exempt and what not. Essentially, it speaks about accommodation as a dwelling and accommodation (lodging or board and lodging) together with “domestic goods and services”. 

What are domestic goods and services?

It’s when you provide any one, or some, or all of the following, together with the accommodation

• Cleaning and maintenance
• Electricity, gas, air-conditioning or heating
• A telephone, TV, radio or similar
• Furniture and other fittings
• Meals
• Laundry
• Nursing services 

 
It’s the provision of domestic goods and services that makes residential accommodation from exempt into Vatable. 

So, the deciding factor as to whether the rental of accommodation is subject to Vat or exempt from it isn’t whether the accommodation for long term rental or even for holiday purposes or enjoyment! It’s the presence of domestic goods and services.

You’ll notice that nursing services are included into the list. The reason for this is to include into the Vat “net” institutions such as old age homes, hospice and “step down” clinics.

Is SARS on the same page us the rest of us?

But SARS doesn’t always understand this! Let’s look at a case in point – one of my own clients, who was faced with this a few weeks ago:

My client – let’s call him Mr M - bought a house to rent out as self catering accommodation. It could be for short periods or even long periods - the point is the house is furnished and a regular cleaner is provided. So, domestic goods and services are, indeed provided.

Mr M registered for Vat and claimed back from SARS the transfer duty he paid on the purchase of the house as well as the other Vat he spent on furniture, linen, crockery, cutlery, etc. 

SARS went round to check if the property actually existed and upfront denied the input tax deductions saying in their letter:  “it is a residence and therefore exempt from Vat”. 

After disallowing the objection the appeal led to an ADR (Alternative Dispute Resolution) meeting with SARS. I sat in on this meeting, as Mr M’s consultant.

During the meeting, it became very clear that SARS didn’t know about the term “domestic goods and services”. It merely applied the exemption to the letting of a residential dwelling. When this was pointed out to SARS, it claimed that only welfare organisations are allowed to operate commercial accommodation. This is a gross misunderstanding of Vat Law. 

However, it seems they took in the short bit of training I offered them at that meeting, as they asked Mr M and I to re-examine the situation. Six weeks later, they allowed the appeal and paid the Vat refund to Mr M. 

What’s the lesson in this case?

1. Always make sure, before you claim a refund from SARS, that you’re 100% sure of your facts.
2. Don’t back down with SARS – obtain a letter from it, stating their reasons of disallowance of a deduction and study it carefully.  Get a Vat specialist to help you, if you’re in doubt.
3. Go the route of objection, appeal and ADR –it is at these meetings that you’ll see how SARS’ mind works and sometimes you can teach it something new! 

Till next month,

Dee Bezuidenhout,

Vat consultant and writer, The Practical Vat Loose Leaf

P.S. If you need a Vat consultant, email Lenell. She has my details and she’s happy to pass them on to you.

Here are some more SARS audit information you will find interesting:
Dealing with SARS
Your ammunition to be 100% confident when SARS audits your business