The special concession contained in the Value-Added Tax Act, 1991, granting relief to those individuals who are permanently resident in hotels, retirement homes or similar establishments has been amended effective from 01 October 2001.
Currently, the effective rate of VAT for such accommodation is reduced from 14% to 9.52% by using a rather complicated formula. This amendment to the VAT Act effectively eliminates this complicated formula and grants further relief. From 01 October 2001, the effective rate will be reduced to 8.4% on the VAT exclusive charge.
This amendment to the VAT Act is intended to compensate for the fact that individuals who live in their own or rented homes do not pay VAT on bond interest, municipal rates and rent as these charges are exempt from VAT.
As from 1 October 2001, where a person stays for longer than 28 days in any hotel, retirement home or similar establishment, only 60% of an all inclusive charge for accommodation and domestic goods and services will be subject to VAT. Domestic goods and services means the supply of accommodation and, where supplied as part of the right of accommodation, meals, furniture, fittings, telephone, television, radio, cleaning, maintenance, electricity, gas, air conditioning and heating. If domestic goods and services, or any other goods and services are charged separately from the accommodation charge, they will attract VAT at 14%.
Where a resident stays for a period not exceeding 28 days, the charge is taxed in full.
The VAT rules relating to the supply of flats or cottages under rental or life-right schemes have not changed. The sale of a life-right and any monthly levy charged or, alternatively the rental of the unit is exempt from VAT. No input tax may be claimed in respect of exempt supplies.
The instructions contained in VATNEWS No 8 and 13, and ruling No 158 contained in the VAT Rulings Register are withdrawn. Any portion of the monthly levy payable under a life-right, share block or sectional title scheme which relates to meals is not exempt from VAT.
You may obtain further information from the VAT Law Administration Section at (012) 422 4000 as well as in VATNEWS No 17 issued in August 2001 or the SARS website at www.sars.gov.za
ISSUED BY THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE