Value-added tax
628. VAT - rent deposits on commercial properties
October 1998



If the owner of commercial or industrial property is a registered VAT vendor, the VAT treatment of rent deposits is important.

For normal tax purposes, the deposit should be held in a separate trust account to avoid being included as part of gross income. This principle is seldom properly followed either by landlords or SARS. There are, however, various technical issues involved.

This note deals only with the VAT aspects. Until the deposit has been used by the landlord and appropriated in lieu of lost rent or to compensate for damages caused by the tenant, SARS accepts that no supply has been made by the landlord for VAT purposes. Only when the deposit is so used is VAT payable.


Landlords are accordingly advised to ensure that the amount of the deposit called for by them (in their leases) is VAT inclusive (e.g. one month’s rent plus VAT).


This will ensure that after they pay over the VAT, they will still receive the benefit of a full month’s rent.


Horwath Zeller Karro

Definition "consideration" S 1 VAT Act