The good, bad and the ugly
Understanding VAT in property can be confusing. Even for SARS. Let’s unpack:
VAT or transfer duty?
A property transaction either attracts VAT, or transfer duty. Never both.
As a rule, if the company you’re buying from is a VAT vendor, you pay VAT;
If not – transfer duty.
As always, there are exceptions. These mainly pertain to ‘dwelling units’ for residential purposes, and is best to understand these on a case by case basis.
Property is one of the largest transactions that attracts VAT.
As such, this ‘simple in-out’, can wreak havoc with your cash flow.
Enter: the ‘zero-rating’
A zero-rating is a fancy term for VAT payable at ‘zero percent’.
Not all transactions qualify; the ones that do must meet strict criteria to be approved.
The sale must qualify as a ‘going concern’ (as defined in terms of the ACT).1. Both buyer and seller must be VAT vendors
There is much confusion around when the buyer must be a vendor by.
Although the act states ‘at the time of transfer’, in my experience, this is not always the case.
My advice is to make sure you’re a vendor at the time of signing the offer.2. You must purchase an income: a third-party lease
“The purchaser must be placed in possession of a business which can be operated in that same form, without any further action on the part of the purchaser…”
Again, there is much debate at SARS about what percentage of the property must be let to qualify. In my experience, at 50% there’s a chance, 75% is better, 100% is best.3. Words matter
There is a very specific way in which the sale agreement must be written to qualify. Any good agent or attorney will be able to structure the agreement correctly. Otherwise you can double-check on SARS’s website.
It’s not all bad
If you paid VAT and were not a vendor at the time, you can retrospectively register and claim input VAT.
If you’re a VAT vendor and paid transfer duty, the amount you paid is claimable as input VAT.
The bottom line
There are many nuances that make up the art of VAT in property.
In most cases, there’s big cash flow at stake and it’s important to make sure your professional team give you a fighting chance.
For assistance with VAT in property or professional property services, contact Kat.