Recently, the Supreme Court ruled on how to determine the private use of a vacation home.
This case involved a landlord who rented out his vacation home through an intermediary agency. For VAT purposes, the property was classified entirely as business assets. The VAT on costs such as maintenance and the like were therefore deducted and VAT was charged on the rental income. For the sake of completeness, we note that these proceedings concerned a vacation home purchased before January 1, 2011, when the deduction rules around real estate changed. However, even under the new rules, it is important to correctly determine the relationship between taxed use (rental to third parties) and private use (own use) and changes can lead to corrections.
In these proceedings, the vacation home was used for private purposes in addition to being used for taxable rental. A correction should be made for this private use. However, the vacation home also stood empty during the year during the periods when the home was not rented out to third parties and the lessor did not use the home himself. The question is how the periods of vacancy should be allocated to the taxed use of the home and/or the private use of the home.
The Supreme Court ruled that private use must be determined using the ratio of "number of days in private use" divided by the "number of days in a calendar year. The days of vacancy therefore do not count for private use. This results in a lower VAT correction for private use. The judgment of the Supreme Court differs in this respect from the earlier judgment of the District Court and the Court of Appeal.
The rule of law that follows from the ruling is that it must be assessed whether the property is readily available for private use. The entrepreneur must be able to dispose of the property at his own discretion. If that is not possible, then no correction for private use needs to be made. This rule of law is not limited to the use of immovable property, but also applies to the private use of movable property, such as, for example, boats rented out by the entrepreneur, but also used by the entrepreneur himself.
It follows from this case that, when assessing the availability for private use, great importance is attached to the contractual agreements regarding private use; this plays a particularly important role when items are leased through an intermediary. Whether/how this ruling affects your personal situation will have to be assessed on a case-by-case basis.
Another important element is the rate application. The reduced rate of 9% applies to the short-term rental of the vacation home. However, the Supreme Court ruled in this case that the standard 21% rate applies to private use. Indeed, the Supreme Court ruled that there is no reasonable doubt that the use of a vacation home for private purposes, does not qualify as "providing lodging" to which the low rate applies. The right of use arises from ownership of the property.
Do you rent out a vacation home yourself and are curious if this recent ruling affects your situation? Or do you have other tax questions? Feel free to contact us via your relationship manager, by email at btw@govers.nl, or by phone at 040 - 2 504 504. Of course, you can also contact us with other tax questions.