Transfer Duty or VAT

TRANSFER DUTY OR VAT?

Whenever immovable property is being transferred from A to B (irrespective of whether the parties are individuals or legal entities), the transaction will be subject to taxation by SARS, either in the form of transfer duty or value added tax (“VAT”).

1. At what rates are transfer duty and VAT calculated? 

• The former distinction between individual purchasers and legal entities as far as the transfer duty payable by a purchaser is concerned, no longer exists and all purchasers are subject to the same rates. If the purchase price is R1 000 000 (one million rand) or less, no transfer duty is payable.
• From R1 000 001 (one million and one rand) upwards, the transfer duty is calculated as follows:

   

  1 000 001 – 1 375 000	3% of the value above R1 000 000
  1 375 001 – 1 925 000	R11 250 + 6% of the value above R1 375 000
  1 925 001 – 2 475 000	R44 250 + 8% of the value above R1 925 000
  2 475 001 – 11 000 000	R88 250 + 11% of the value above R2 475 000
  11 000 001 and above	R1 026 000 +13% of the value exceeding R11 000 000

1.2. The current rate at which VAT is payable by individuals and legal entities, is 15% (fifteen   percent).

2. In what instances will transfer duty be payable and in which instances will VAT be payable? 

• Normally, and in the majority of cases, transfer duty will be payable as explained in 1 above.

• The mere fact that a seller of immovable property is registered as a VAT-vendor in terms of Section 23 of Act 89 of 1991 (the “VAT Act”) does not necessarily mean that the sale of his/her/its property will be subject to payment of VAT. Only if, for example, in the past the seller had claimed “input VAT” in connection with the property, “output VAT” will be payable on the sale thereof. In such a case no transfer duty will be payable. This is in line with the principle that a single taxable transaction can only be taxed once.
• It thus follows that if the seller has never claimed VAT in respect of a property, he/she/it may choose to either treat the sale thereof as a “VAT transaction” or a “transfer duty transaction”.

3. Who is responsible for payment of TD or VAT and when will either be payable?

• Our law does not prescribe whether the seller or the purchaser is responsible for payment of transfer duty. The only concern of SARS is that the relevant transfer duty is paid by one of the parties to a transaction within 6 (six) months from date of last signature of the deed of sale (normally the date of acceptance by the seller of the Offer to Purchase). However, the practice has developed that the purchaser of immovable property normally pays the relevant transfer duty as part of the transfer costs. Nothing prevents the parties from stipulating in the deed of sale that the seller will be responsible for payment of transfer duty but it seldom, if ever, happens.
• As far as VAT is concerned, the “VAT Act” stipulates that the seller is responsible for payment thereof. In practice, the seller will merely add the relevant VAT to the price that is required for the property. Consequently, the purchaser normally ends up paying the VAT as part of the purchase price but in lieu thereof he/she/it does not have to pay any transfer duty.

4. Is it possible to structure a sale transaction in such a way that neither transfer duty nor VAT will be payable?

Yes, it is possible. Provided that:

• the seller of immovable property is registered as a VAT-vendor in terms of Section 23 of the VAT Act; and
• the purchaser is similarly registered as a VAT vendor, or will at least be registered as such prior to the date of “supply” (transfer); and
• the fixed property forms part of an enterprise that is being disposed of as a going and income-earning concern, together with the assets that are necessary for carrying on business.

The transaction will then attract VAT at a zero-rate. Consequently, and whereas a single taxable transaction can only be taxed once, neither VAT nor transfer duty will be payable.

This is normally the case with guest houses and commercial properties. However, if a private property is exclusively being let as a holiday accommodation, or in terms of a long-term lease, it is also deemed by SARS as an enterprise that is capable of being disposed of as a going concern.

The wording of the deed of sale will be of utmost importance and will have to clearly reflect the parties’ intention of qualifying the transaction as a zero-rated one.