No further extension on the VAT claw back relief
23 Mar 2018
Where a property developer constructed residential units for sale and these units are temporarily let out as a result of the adverse economic conditions the developer had to declare the output vat on a deemed supply of such units. This imposition of VAT on the deemed supply is based on the open market value of the property when the property was first let out. This resulted in unreasonably high negative cash flow consequences for property developers.
Relief offered by SARS
In 2012 the VAT Act was amended to include special relief in order to alleviate such unreasonable cash flow consequences, but this relief was only applicable for 36 months, commencing on or after 10 January 2012 and expiring on 1 January 2015. Further relief was then provided for a further 3 years to 1 January 2018.
Consequences for property developers
It should be noted that the 36 month rule is applicable to each unit. Therefore if a unit was let out from 1 January 2015 the vat claw back will apply on 1 January 2018. Property developers needs to consider ceasing the rental of these units to ensure that they do not fall foul of this provision. If any lease was entered into during the January 2015 period, and the unit is still being let out the developer will be liable to account for a deemed output VAT in his 2018/01 return (which if done monthly will be due at the end of February 2018).
Article written by Henico Schalekamp - Partner at PKF Octagon