VAT OR TRANSFER DUTY? ........ A SIMPLIFIED EXPLANATION
Category Advice
VAT OR TRANSFER DUTY? ........ A SIMPLIFIED EXPLANATION
The questions about the applicability of VAT or TRANSFER DUTY, in the Purchase or Sale of a property, continue, so we attempt to explain it simply as follows:-
- To clarify, we are discussing vat or transfer duty on the purchase price and not Transfer Fees that are payable to the Conveyancer or the VAT on such or similar fees.
- Both VAT and TRANSFER DUTY are taxes on the sale of a property and fortunately, to avoid double taxation, only one or the other is payable.
- The applicability of the one versus the other is only dependent on whether or not the Seller is vat registered. If the Seller is vat registered then VAT is payable and if the Seller is not vat registered then TRANSFER DUTY is payable.
- Most residential sales involve TRANSFER DUTY and not VAT as, in most cases the Seller is not vat registered.
- Most industrial and commercial property sales involve VAT and not TRANSFER DUTY as the Seller is normally vat registered, but it is not always the case.
- Both VAT and TRANSFER DUTY transactions can be zero rated under specific circumstances.
- TRANSFER DUTY is not payable on the purchase of a property with a value of less than R1mil and in certain other cases such as inheritance or marriage in community of property. Where TRANSFER DUTY is payable, it is payable on a sliding scale going up to a maximum of 13% on values above R11 mil.
- VAT transactions can be zero rated if the property is purchased as a going concern. In order to qualify as a going concern, the property will normally need to tenanted, with a minimum of 50% occupancy and for at least 3 months prior to transfer with the intention to continue after transfer. The Purchaser will also need to be vat registered.
- Where a vat registered company, that owns a property, is purchased, rather than purchasing the property out of the entity, then such transaction is also generally zero rated for purposes of vat.
- If a vat registered company purchases a property for business purposes and pays either VAT or TRANSFER DUTY, they can claim such amount back as an input tax on their next vat return.
- Cashflow is therefore the only advantage of purchasing a property as a going concern.
- There are certain cases where the notional vat on a purchase can be claimed even where TRANSFER DUTY is paid. Vat registered entities that purchase a property and pay transfer duty are therefore encouraged to seek advice from a specialist tax consultant.
This is a simplified version of a complex subject and the reader is encouraged to seek specialist advice in any cases that may be more complex.
Author: Robert McInerney
