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 Jan­uary 10, 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 Jan­uary 1, 2015, but was sub­se­quently ex­tended to Jan­uary 1, 2018, when it ceased to ap­ply.

The South African Rev­enue Ser­vice (Sars) is­sued Bind­ing Gen­eral Rul­ing No. 48 (BGR 48) on July 25, 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:

Devel­op­ers are only re­quired to make the sec­tion 18(1) change in use ad­just­ment in the tax pe­riod dur­ing which the 36-month pe­riod ends, even if this pe­riod only ex­pires af­ter De­cem­ber 31, 2017, and The 36-month pe­riod is cal­cu­lated from the date that the tem­po­rary let­ting agree­ment was en­tered into for the first time from Jan­uary 10, 2012, to De­cem­ber 31, 2017.

For ex­am­ple if the devel­oper ap­plied a prop­erty for tem­po­rar­ily let­ting pur­poses on Novem­ber 1, 2017, for the first time, the vendor must ac­count for the out­put tax ad­just­ment in the tax pe­riod within which Novem­ber 2020 falls.

As sec­tion 18B ex­pired on De­cem­ber 31, 2017, any dwelling that is tem­po­rar­ily let from Jan­uary 1, 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 cash flow in that pe­riod as the res­i­den­tial prop­erty would still be on hand but there would have been a VAT li­a­bil­ity due to Sars.

An­other con­cern not ad­dressed in BGR is the change in VAT rate from 14% to 15% and how that would im­pact the change of use cal­cu­la­tion.

This ar­ti­cle has been writ­ten by Khadija Ally, who is a tax con­sul­tant. She can be con­tacted at 060 976 8436 and

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