Many property developers and purchasers are unsure how the increase in the VAT rate to 15% will affect their property deals signed before 1 April 2018.
What does the VAT Act say?
Section 9(3)(d)(ii) and (iii) state that “where goods consisting of fixed property or any real right therein are supplied under a sale, that supply shall be deemed to take place on the earlier of registration of transfer of the goods effected in a deeds registry or on the date on which any payment is made in respect of the consideration for such supply”.
In terms of the above it would then be assumed that all property transactions signed before 1 April of which transfer or payment occurs after this date, will be treated at a rate of 15% and either the developer or the purchaser will be out of pocket.
Is there any relief that can be applied?
Section 67A of the VAT Act specifically provides for the application of increased or reduced tax rates and Section 67A(4) (a)(b)(c) prescribes when this increase will become effective with regards to the sale of fixed property. It states that if a written agreement is concluded for:
- the sale of fixed property consisting of any dwelling together with land on which it is erected;
- or any real right conferring a right of occupation of a dwelling including unit in terms of Sectional Title or any share in a share block company;
- or the sale of fixed property consisting of land for the sole purpose of the erection of a dwelling;
- or the construction by any vendor carrying on a construction enterprise of any new dwelling;
and the price of the sale or construction was determined and stated in the said agreement, was in force before 1 April 2018, the agreement was signed by all parties before 1 April 2018, the supply of said property or services is deemed to take place on or after the said date, then the rate at which tax is to be applied shall be the rate at which tax would have been levied had the supply taken place on the date on which the agreement was concluded.
Section 67A therefore provide relief to all residential property developers and purchasers.
If you are a residential property developer, ensure that you have the above written agreement in place, stipulating the price and ensure all parties have signed and agreed to the rate of 14%. If you are a commercial property developer you need to review your agreements and ensure that you have provided for the increase in VAT.
This article was published by Tracey Jones, a registered Tax Practitioner and Director of C2M Tax Assurance. Should you require assistance contact Tracey Jones on +27 21 914 0261 or email email@example.com.
View the SARS VAT Pocket Guide or download a copy of the SARS Frequently Asked Questions: Increase in the VAT rate