There is often a lot of confusion around the issue of VAT
insofar as the payment of the deposit is concerned. Should VAT at the
applicable rate be included in the calculation of the Deposit, or not? The
answer is rather complex. In terms of
section 1 of the Value Added Tax Act 89 of 1991 (“the Act”) “consideration” is
defined as being any payment made
for the supply of goods or services. The section, however, goes on to stipulate
that “a deposit (other than a deposit on a returnable
container), whether refundable or not, given in respect of a supply of goods or
services shall not be considered as payment made for the supply unless and
until the supplier applies the deposit as consideration for the supply or such
deposit is forfeited”.
It follows that only when the Deposit is utilised, either to
repair any damage to the Premises or to recover arrear Rental, will the amount forfeited
by the Tenant be subject to VAT at the normal rate. As such, when interpreting
the provisions of the Act, the Deposit initially paid by the Tenant should technically
not include VAT. HOWEVER, in the event that VAT is not included in the
calculation of the Deposit then the Landlord or Agent may end up being be out
of pocket should the Deposit, or any portion thereof, indeed need to be
utilised to affect repairs or recover arrear Rental. In other words, one must
include VAT, at the standard rate, in the calculation of the total Deposit,
although this fact need not be stipulated in the Lease.