Find out who is responsible for VAT and transfer duty, and when.
A purchaser is responsible for payment of the transfer costs (attorneys’ fees and the Deeds Office levy) when acquiring an immovable property. In addition however, it should be accurately established (before the deed of sale is signed) whether the transaction is subject to the payment of VAT or transfer duty to SARS. This has a significant financial implication for both the parties and should therefore be established with care.__
When an immovable (or fixed) property is transferred, either VAT or transfer duty is payable. In order to determine which of these is payable, one should note the status of the seller and the type of transaction involved.
If the seller is registered for VAT and he sells the property in the cause of his business, VAT will be payable to SARS. In addition the person who is a VAT vendor should be selling a property that is related to his business from which he derives an income.
When a seller is not registered for VAT, but the purchaser is a registered VAT vendor, the purchaser will still pay transfer duty, but may potentially claim this back from SARS after registration of the property.
When the seller is not a registered VAT vendor, it is almost certain that transfer duty will be payable on the transaction. The purchaser is responsible for payment of the transfer duty.
Transfer duty is levied on the reasonable value of the property, which normally will be the purchase price, but should the market value be higher than the purchase price, transfer duty will be payable on the greater amount of the two. Moreover, transfer duty is payable within six months from the date that the offer to purchase (deed of sale) is signed. Failing this, SARS will levy late payment penalties.
In instances where a party obtains a property as an inheritance or as the beneficiary of a divorce settlement, the transaction will be exempted from payment of transfer duty.
It should be noted that even where shares in a company or rights in a trust are transferred, the transaction will still be subject to payment of transfer duty if the legal entity is the owner of a residential property.
This means that VAT will be payable on the transaction but at a zero rate. If both the seller and the purchaser are registered for VAT and the property is sold as a going concern, VAT will be charged at a zero rate, for instance when a business owner sells its business, the office furniture and equipment and the fixed property.
Nicolene Schoeman-Louw, Schoeman Tshaka Attorneys (Cape Town)
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