RENT DEPOSIT NOT PAID IN FULL

[DGi]

Good day to all

I have another hypothetical question regarding a Rent Deposit that has not been paid in full.

The info I have is that the owner of the business paid the Rent deposit at the beginning of the month, but he rented additional space which he had not paid the deposit for yet.
To be specific, R15000 was paid to the property letting company, R6000 was a Rent Deposit, R9000 was for the Rent Expense for the month (including the additional space rented). It is confirmed that the additional space is part of the lease and to my knowledge the Rent Deposit should be R9000, but the owner has only paid R6000, and thus owes the property letting company R3000 for the Rent deposit? If the letting company has not yet given any statement/invoice that the owner of the business owes the R3000 deposit, can it be recorded in the general journal? The company is a VAT Vendor and pays commercial rent.

My recording in the general journal is as follows: (this is just a basic excel spreadsheet journal, no software as it is for an assignment)

Dr/ Rent expense R7826.1
Dr/ VAT Input R1173.9
Dr/ Rent deposit R5217.4
Dr/ VAT Input R782.6
Cr/ Bank R15000

I then went on the assumption that you can record the outstanding Rent deposit of R3000:

Dr/ Rent deposit R2608.7
Dr/ VAT Input R391.3
Cr/ Creditors ctrl/Company R3000

Please advise on if you can record the outstanding amount even if no invoice was given for the outstanding amount. This is for an assignment and is why it is only a basic excel general journal entry and part of an assignment. Sorry for the very long message.

Thanks in advance!

[Andromeda]

Hi DGi, you should probably not be accounting for VAT on a deposit, because deposits do not attract VAT.
It is fine if the company is a VAT vendor, but is the lessor a VAT vendor?

The rent is usually exclusive of VAT in the lease, but if you have an invoice for the rent amount I guess you can consult that.

[DGi]

Hi DGi, you should probably not be accounting for VAT on a deposit, because deposits do not attract VAT.
It is fine if the company is a VAT vendor, but is the lessor a VAT vendor?

The rent is usually exclusive of VAT in the lease, but if you have an invoice for the rent amount I guess you can consult that.

Hi there, thanks for the reply.
The reason I added VAT on the deposit is because the assignment stated that all amounts include VAT unless stated otherwise, which is very vague and unclear, but because off this I have to go on the assumption that they are as well a VAT Vendor. I also tried to research the Deposit- if it includes VAT, and according to saica.co.za they stated that it is advised to include VAT since if the deposit is used in damages exc., that the landlord is not missing the amount.

Here is the entire quote that convinced me to put VAT on the deposit:

"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." https://www.saica.co.za/integritax/1...properties.htm

Please advise if this is incorrect.

[DGi]

Hi DGi, you should probably not be accounting for VAT on a deposit, because deposits do not attract VAT.
It is fine if the company is a VAT vendor, but is the lessor a VAT vendor?

The rent is usually exclusive of VAT in the lease, but if you have an invoice for the rent amount I guess you can consult that.

To add to my previous reply, I also read that there is VAT on commercial rent and not on residential rent, is this also incorrect?

[DGi]

To add to my previous reply, I also read that there is VAT on commercial rent and not on residential rent, is this also incorrect?

My previous reply, not yet visible, states that I have to go on the assumption that all payments have VAT on it unless stated otherwise, and so I have to go on the assumption that the Property rental company is as well a VAT Vendor, and then VAT can be charged on Commercial rent

[Dave A]

Sorry for the delay in getting your post through moderation, DGi.

[Andromeda]

SARS accepts that no supply has been made by the landlord for VAT purposes. Only when the deposit is so used is VAT payable.

A vendor can only claim the VAT as an input VAT if he has an invoice or tax invoice to substantiate it, ignoring taxable supply issues.

The SAICA opinion that you are quoting is an advice and suggestion to landlords to include VAT in their deposits (this is not VAT, merely how to arrive at the deposit amount) so that if they have to apply a part or all of the deposit, they are not out of pocket. The point is still that VAT is not accounted for on the deposit by either the lessee or lessor, until it is applied.

Other than that your entries are fine, just get rid of the VAT on the doposit.

[DGi]

A vendor can only claim the VAT as an input VAT if he has an invoice or tax invoice to substantiate it, ignoring taxable supply issues.

The SAICA opinion that you are quoting is an advice and suggestion to landlords to include VAT in their deposits (this is not VAT, merely how to arrive at the deposit amount) so that if they have to apply a part or all of the deposit, they are not out of pocket. The point is still that VAT is not accounted for on the deposit by either the lessee or lessor, until it is applied.

Other than that your entries are fine, just get rid of the VAT on the doposit.

Thank you very much!
Just to clarify on my earlier post, if I still owe R3000 on the rent deposit but did not receive any statement/invoice from the landlord that states that I owe that amount yet, should I record it in the general journal, when I don't have the proper invoice number/reference, or should I wait until I receive the invoice from the landlord stating how much I owe?

[Andromeda]

You can raise the liability as an accrual.
So debit deposits and credit creditors or accruals