Speaking to senior Rawson Properties agents, Tony Clarke, MD of the Rawson Group, warned them that “out there” among the general public there are still widespread misunderstandings about VAT and transfer duty – and these, he said, can bedevil a sales transaction. The most commonly asked question is when does a seller pay VAT and when does he pay transfer duty?

If the seller is VAT registered and the property is defined as a “supply” to the purchaser (i.e. it will not become his primary residence) the seller has to pay VAT. Furthermore, in almost every case, unless otherwise stated, the sales price is deemed to include VAT and this is payable as soon as transfer takes place or, at the latest, in the first bi-monthly tax return.

VAT payers, said Clarke, are exempted from transfer duty. The Receiver of Revenue will in most instances, issue a certificate to this effect and this has to be produced before the transaction can go ahead. “This” said Clarke, “is set out in Section 9 (15) of the Transfer Duty Act and this applies even if the sale is zero rated for VAT purposes.” Closed corporations and companies, said Clarke, almost always have to pay VAT on the sale of their properties even if property dealing is not part of their usual activity. Where the property is owned by a family trust its executors are required to register for VAT on sales that exceed R 1 million in one year.

Follow up:

Individuals who are the sole proprietors of their businesses also have to pay VAT on all investment property sales, excluding primary residences.

However, those running a business from their primary property (i.e. from their home) have to pay VAT on the sale of their property if the business occupies over 50% of the total land area.

“In certain cases,” said Clarke, “if a purchaser can be classified as a trader and is registered for VAT, he can then agree to pay the seller’s VAT and apply to SARS to be credited for this, or if transfer duty is paid, he can claim the transfer duty back. However, in these instances he will then be liable for the VAT payments when the property is resold.”

A zero rating on a sale, said Clarke, only comes into force when both the seller and the buyer are VAT registered and the property is sold as a going concern, which will continue to produce an income.

Clarke warned that these rules have to be fully understood and applied by agents who, despite the presence of conveyancing attorney, will be held responsible by buyers and sellers if they do not explain these matters to them clearly upfront. In all cases, the party responsible for the VAT payment to SARS is to be clearly indicated on the Sales Agreement.