S18D

Question 1

Explain, with supporting calculations, all the VAT implications for Sogren with
regard to the letting of the flats

Answer 1

Construction of flats:
Sogren would have claimed input tax in terms of s16(3) on the costs of construction of the
flats

to the extent of making 100% taxable supplies

Question 2

Change in use:
When the ten flats are subsequently applied by the vendor as an exempt supply, a change
of use adjustment arises. The change of use is determined in terms of section 18D because
the flats are
* Held by a developed (Sogren) wholly for making taxable supplies (i.e. for sale), and
* Subsequently “temporarily let” for a period of six months (i.e. not exceeding 12
months)

Answer 2

The flats are deemed to have been supplied by Sogren by way of a taxable supply in the
course of their enterprise, therefore output tax is charged

Question 3

time of supply (s9(13)): the earlier of when the letting agreement comes into effect or
when the dwelling is occupied, that is, 1 March 2023 (included in the end of April VAT
return).

Answer 3

Consideration for the supply (s10(29)): the adjusted cost at the time of the supply, being
R7 million each

Question 4

Thus, in the March/April 2023 tax period, Sogren must raise output tax calculated by
applying the tax fraction to the open market value of the flats:
R7 million x 15/115 = R913 043

Answer 4

The renting out of the flats is the supply of a residential accommodation (dwelling) in terms
of an agreement for the letting and hiring thereof, which is an exempt supply in terms of
s12(c) of the VAT Act.

Question 5

and Sogren may not levy output tax on the rental income received of R10 000 per month.
(Conclusion on discussion of rent)
1P
9 Insurance premiums: Thus, Sogren may not claim any input tax credits on insurance
premiums incurred in respect of the residential letting (an exempt supply).