Rent Management

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VAT and Commercial Rent

Value Added Tax (VAT) is often a major headache for Rental Agents and Tenants. VAT is charged on goods and services and paid for by the end user. Certain goods and services are exempt from VAT.

Residential rent is expressly excluded from VAT. This means that ordinary residences, occupied by families for residential purposes, are not expected to pay VAT. An agreed monthly rental amount of R10000.00 means exactly that, pay R10000.00. This makes it easy for Landlords and Tenants to settle rental accounts between them. Also, a separate invoice is not strictly necessary and an ordinary running statement showing all transactions and a balance is sufficient.

Commercial Rent

The situation with Commercial Rent is at once substantially different and complex.

First, the Agent managing the commercial property is responsible for issuing a VAT invoice, but the VAT-able goods does not come from the Agent’s “stock” – the Agent issues an invoice on behalf of the Landlord.

Second, the Landlord must be registered for VAT in order to be able to issue a valid VAT tax invoice. Only registered VAT vendors can issue VAT invoices. This constitutes standard Output VAT in the books for the Landlord. As a registered VAT vendor, the Landlord is compelled to issue regular VAT invoices, regardless of the status of the Tenant.

Third, in order for the Tenant to be able to claim VAT, the Tenant must also be a registered VAT vendor. Only registered VAT vendors can claim VAT. This is processed as standard Input VAT in the books of the Tenant.

The Invoice itself is a standard VAT Tax Invoice. The normal requirements apply. The invoice issued on behalf of the Landlord must contain the Landlord’s registered name, the VAT registration number and full address. In order for the the Tenant to be able to claim the VAT, the Tenant’s registered name, the VAT registration number and full address are also required. Full financial details must be revealed. The Agent issuing the VAT invoice is merely a facilitator. VAT invoices are required by law to be issued once a month, every 21 business days.

Checklist

Need a VAT invoice for your rent? Check these items:

  • Is the Landlord a VAT vendor?
  • Is the Tenant a VAT vendor?
  • Does the Lease Agreement identify the property and agreement as commercial in nature?

In the event that the Landlord is not registered as a VAT vendor, no VAT invoice can be issued.

In the event that the Tenant is not registered as a VAT vendor, no VAT may be recovered.

Only in the event that the Landlord is a registered VAT vendor AND the Tenant is a registered VAT vendor, a valid VAT tax invoice may be issued and the VAT recovered by the Tenant.

A potentially very unsatisfactory situation arises where the Tenant is registered for VAT and the Landlord is not. The Tenant would prefer to recover input VAT on the monthly lease invoice, but as no such invoice can be issued, VAT is not recoverable. This makes it important to verify the status of the Landlord prior to signing a lease agreement.

The VAT registration status of the Agent is irrelevant to the issuing of Commercial Lease VAT invoices.

-Dynamic

Dynamic

Accounting for rental deposits

It is common practice to require a tenant to pay a deposit on occupation of a rental property. The rent is intended to secure at least one month’s worth of occupation and provide for potential damages caused by the tenant. Rent deposits are regulated in terms of Rental Housing Act 50 of 1999.

A common feature in managing rental properties, the underlying accounting mechanisms are typically not well understood which often leads to deposits not being accounted for at all, leading to invisible transactions and inaccurate records.

In order to properly account for a rental deposit, the following needs to occur

  • Debit tenant account with a Deposit required
  • Credit tenant account when payment is received
  • This will zero the tenant account
  • Payment received from the tenant will create a credit on the ledger, but it is not available for pay out to the landlord; to balance this credit, the deposit amount must be invested
  • Debit the ledger with the investment payment

At this point, the ledger will reflect only the regular monthly rent roll transactions, and the rent deposit investment is accurately and comprehensively accounted for.

Once the rental agreement terminates, these steps are reversed to release the credit on the ledger

  • Credit the ledger with the amount received from the investment. Note that due to the effect of interest accrued this amount will be more than the initial deposit received
  • This receipt will result in a credit balance. This credit can be paid to the tenant as a refund, or paid to the owner as settlement
  • Pay out of this amount will normally zero the account

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2022 Interest Rates and Rent

Interest rates have recently increased from a record low of 3.5% in July of 2020 to the 7% at the end of November 2022.

South Africa’s benchmark repo rate increased by another 75 basis points to 7% at its November 2022 meeting. This is the 7th consecutive rate hike since policy normalization started in November 2021.

With such a steep increase in interest rates linked to already harsh economic conditions, the property market comes under increased pressure.

The number of properties for sale will increase, but with higher interest rates, these will not fetch the same high market values seen a year ago. At the same time the demand for rental properties is expected to increase. This will invariably place greater demand on rental agents and their ability to deal with the expectations of rental property owners and rental tenants.

One such requirement is accurate, up to date accounting that reflects the tenants financial position: what is due, what has been paid and what is the current balance. At the same time, owners expect accurate, up to date payment and accounting of all relevant transactions.

Dynamic provides such a fast, simple accounting solutions for rental property practitioners.

Read more about matters concerning Rental Properties:

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RMS: Tenant Billing

A tenant of a rental property is entitled to statement of account clearly indicating recurring obligations and confirming historic transactions. By definition rent should always be paid up to date an age analysis for rent should be considered an anomaly.

Tenant Statements

Statements of account issued to a tenant should include all items debited to such an account:

  • the rent due
  • repairs charged
  • utilities or services used

And the tenant’s account must also reflect any payments made by the tenant.

The net balance of the tenant statement should be a clear indication of the current status of indebtedness by the tenant. Bear in mind that rent is typically charged in advance.

The Landlord

Dynamic’s unique Rent Management System allows for invoices to the landlord for services rendered, as well as statements with running balances.

This means that one powerful accounting solutions provides detail accounts to both the landlord and tenant in an easy to understand format.

-Simply Dynamic

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