Renting a home office to your BV: residential use can block VAT recovery

What happened in this case?

A married couple had a lockable 15 m² office built above the garage of their family home. It had its own entrance and access through the garage, but no separate sanitary facilities. A partnership of the spouses let the office to the BV of one spouse. Input VAT on construction costs had been deducted on the basis of an intention to make a taxable letting. The tax authority corrected that deduction.

Residential use is the decisive restriction

To opt for taxable letting, the rented space must not be used as a dwelling. Actual use matters, even where the room remains structurally part of a home. In this case it was established that the office was also used for residential purposes. The taxpayer argued that this amounted to no more than one or two per cent of the year. The Supreme Court held that even such limited residential use prevented the option.

Non-business use is not always residential use

The appeal court had required the office to be used exclusively for business purposes. The Supreme Court considered that wording too strict. Limited non-business use that is not residential need not always prevent the option; the other taxable-letting conditions still apply. That distinction did not help this landlord because residential use had been established. The appeal in cassation was dismissed.

A contract alone is not enough

A person relying on the option must substantiate that its conditions are satisfied. A rental agreement with the BV or separate access does not by itself establish a right to deduct VAT. Record which part is rented, how it is furnished and what it is actually used for. Assess the layout and everyday practice together before drawing conclusions from a business-use description in the contract.

Review VAT before construction starts

Before committing to building and rental obligations, document the intended use and costs. Then assess whether taxable letting is available and what that means for VAT on the investment. This judgment concerns VAT; it does not automatically resolve income tax questions or the BV’s deduction of expenses.

Oudshoorn can review these issues alongside one another so that the tax treatment reflects the actual arrangements.

More information from Oudshoorn

• VAT and indirect taxes
• Real estate taxation