Recently, after much speculation, then Finance Minister Malusi Gigaba (now replaced by Nhlanhla Nene) announced a raise of the percentage of Value Added Tax (VAT) from 14% to 15%, effective from the 1st of April 2018.
While many wonder whether this is the way forward, it should be noted that VAT hasn’t had an increase since 1993, and this increase will generate a further R36 billion per annum for the government.
With the upcoming change in the VAT rate, thoughts went to property transactions and when does VAT apply to a property sale as opposed to Transfer Duty?
On sale of a property, the South African Revenue Service (SARS) wants its cut, either through Transfer Duty or VAT, as per the relevant Act.
Determining whether a property sale is subject to VAT or Transfer duty, one needs to look to the Seller to ascertain which tax is applicable. Should the seller, in his/her or its capacity, be VAT registered for the purposes of the sale, then VAT will apply, if not, Transfer Duty kicks in.
When applicable, and the sale price includes VAT, the VAT amount must be paid by the Seller to SARS. If the purchase price in the sale agreement reflects the purchase/selling price as “Vat Exclusive” & the seller is VAT registered, then the Purchaser needs to be aware that he/she will have to pay the purchase price PLUS VAT thereon to the Conveyancing attorneys.
Both VAT & Transfer Duty rates are based on the sale/purchase price, with VAT at a set percentage and Transfer Duty working on a sliding scale. For a more detailed breakdown of the Transfer Duty costs you can click here to view our Transfer & Bond Cost Sheet.
While the above is relatively straight-forward, there are situations where it is possible for the transaction to be zero-rated. Properties that are sold as part of a going concern, meaning for example, an apartment block with tenants, where both seller and purchaser are VAT vendors can have the transaction zero-rated. If requirements that are set out in the VAT Act are met in terms of the sale agreement, the transaction may be zero-rated by SARS, the effect being that the VAT payable on the transaction would be at a rate of 0%.
It should also be noted that the seller may be subject to Capital Gains Tax (CGT) if the property sold is not his/her primary residence. If the property is the primary residence and the gain is above the R2 million threshold then CGT will apply at the specified rate depending on the type of seller, being an Individual, Company or Trust.
In the case of the seller being Non Resident and the sale price is over R2 million, Withholding Tax will apply at a rate of 7.5% for a natural person, 10% for a Non Resident Company and 15% for a Non Resident Trust.
Whenever you are looking to sell your property it is always advisable to consult with the relevant professional to ensure you obtain the correct advice and know what taxes will apply to you and your specific transaction.
For assistance or advice you can contact our offices firstname.lastname@example.org