Tax Relief Planned For Purchasers Of Rental Pool Units

A useful and convenient way of maximising one's returns on a property purchased for temporary or holiday use is to enter it in a rental pool scheme. An operator manages the rental pool scheme, which entails renting out units which are not in use and "pooling" the rental income for distribution to the owners in the scheme, after deduction of certain expenses. An example would be the purchase of a unit in a hotel, where the unit will be occupied by the owner for only a few days a year and will be made available for use by the hotel for the remainder of the year.

Should the owners of units elect in writing that the operator may use their units as part of the rental pool, the rental pool will be regarded as an enterprise carried on by its operator separately from the owners and may be registered for VAT.

What happens when the owner of a unit which forms part of the rental pool sells the unit? Will this disposal attract VAT?

The general principle is that when one acquires property which constitutes a taxable supply of goods under the VAT Act, the transaction is subject to VAT and exempt from transfer duty. An anomaly however exists in that, although the unit in the rental pool forms part of a VAT vendor's (the operator's) enterprise, the unit owner is not registered for VAT and the transaction accordingly attracts transfer duty.

The recently published Revenue Laws Amendment Bill provides a measure of relief. If the unit remains in the rental pool, the seller and purchaser are deemed to be VAT vendors for purposes of the disposal and the transaction will be VAT neutral. In order to qualify for the exemption, the purchaser must elect in writing that the unit will remain in the rental pool.

The rationale behind the suggested amendment is that, while ownership of the unit changes...