2022 / 06 / 23
VAT is levied at 15%. Certain property transactions will attract VAT and in which case they will not attract transfer duty.
How do we know when the transaction attracts transfer duty or VAT?
The golden rule or rule of thumb in order to determine whether VAT or Transfer duty is payable, is dependent on the status of the seller i.e. whether an individual or entity is a VAT vendor for purposes of the transaction and is rendering a taxable supply.
If the seller is a VAT vendor (registered for VAT) then generally VAT is payable either by the purchaser or the seller, as will be discussed hereunder. If the seller is NOT a VAT vendor, then transfer duty is payable by the purchaser. If the seller is a VAT vendor but is selling a property which is not considered a taxable supply, such as a residential property, then transfer duty is payable by the purchaser.
The registration of transfer will trigger the VAT payment which is payable within the seller’s next VAT period after registration of transfer.
Once you have determined that the transaction will attract VAT and the seller is a VAT vendor who is selling a taxable supply, then one must determine if the transaction is inclusive or exclusive of VAT? This is important as it will affect the purchase price for the purchaser or the bottom line of proceeds due to sellers.
Once you have determined whether the transaction is inclusive or exclusive of VAT then you must determine if the VAT input can be claimed back by the purchaser or if the transaction can be zero rated?
Either way once it is established that it is a VAT transaction then the conveyancer will submit a transfer duty exception to SARS and receive a transfer duty exemption certificate for lodgement in the Deeds Office. This transfer duty exemption will state in terms of which section of the act the exemption is issued.
TRANSACTIONS INCLUSIVE OF VAT
If the sale agreement is silent or states that the purchase price is VAT inclusive then the seller will pay the VAT to SARS out of the proceeds of sale. The Vat is calculated as follows:
- Purchaser price div by 115 = X 15 = an inclusive VAT rate.
EXAMPLE — purchase price of 1 000 000 ÷ 115 = X 15 = R 131 78.94 which the seller will pay to SARS.
So, the purchaser will save on transfer duty and will not pay the VAT.
TRANSACTIONS EXCLUSIVE OF VAT
If the sale agreement states that the purchase price is VAT exclusive then the purchaser will pay VAT of 15% on top of the purchase price and this will be collected with the purchase price by the conveyancer and paid over to SARS on behalf of the seller. It can be paid to the seller who will pay same to SARS within the next tax period when the VAT return is submitted or the conveyancer can pay same over to SARS after registration. The VAT is calculated as follows:
- Purchase price X 15 % VAT = an exclusive “standard” VAT rate
EXAMPLE – purchase price of 1 000 000 X 15% = R 150 000.00 which the purchaser will pay over and above the purchase price to the conveyancer who will pay it over to SARS or to the seller to pay to SARS.
Here the purchaser will pay VAT (R 150 000) but no transfer duty (R 3000). VAT is way more.
RECLAIMING THE VAT FROM SARS
If the purchaser is a registered VAT vendor, and purchasers for commercial reasons or the property is purchased as a taxable supply ((i.e. NOT a residential property), then the purchaser can claim the inclusive or exclusive VAT rate/transfer duty which was paid to SARS back as a tax input. In order to claim the VAT back the purchaser will have to submit to SARS with its next VAT return the following documents:
- a copy of the transfer duty exemption.
- a tax invoice on a letter head of the seller, addressed to the purchaser, reflecting the VAT numbers of both seller and purchaser, the VAT in question and the name and address of the purchaser.
If the seller is not registered as a VAT vendor and the purchaser is registered as a VAT vendor then the purchaser will pay transfer duty and will be able to reclaim the amount of transfer duty back as a tax input on the tax return, only if the purchase of the property was commercial property or a taxable supply (i.e. not residential).
Therefore, by example—If a registered Vat Vendor buys a residential house for personal use and he either pays VAT if the seller is a VAT vendor or pays transfer duty if the seller is not a VAT vendor, in both instances the VAT/transfer duty (tax input) will not be able to be claimed back because it is a residential transaction and not a taxable supply i.e. commercial transaction.
ZERO RATED TRANSACTIONS
The scenario exists where the transaction can be Zero Rated, and where the following criteria must be present:
- The immovable property is sold as a going concern in other words there is a business which forms part of the supply which can be run as a separate income earning activity, and the purchaser acquires the immovable property and business together as a going concern.
- The seller is a registered VAT vendor.
- The purchaser is a registered VAT vendor.
- A written contract signed by both seller and purchaser must contain the requisite conditions relating to the above.
In the above instance neither transfer duty nor VAT need to be paid.
Article by Louise Tonkin