Increase in VAT: What rate should be charged in property transactions?

In the 2018 Budget Speech delivered by Finance Minister Malusi Gigaba on 21 February 2018, the standard rate of VAT was increased from 14% to 15%, effective from 1 April 2018.

However, tax is never that simple. Even after 1 April 2018, there are circumstances where the applicable VAT rate will still be 14%. The Value-Added Tax Act 89 of 1991 (“VAT Act”) contains certain specific rules with regard to a VAT rate change and the rate of VAT which will apply to goods or services supplied during the transitional period.

General fixed property transactions

The rate of VAT for fixed property transactions is the rate that applies on the date of registration of the transfer of the property in a Deeds Registry or the date that any payment of the purchase price is made to the seller (whichever occurs first).

Residential Property

Section 67A (4) of the VAT Act contains a rate specific rule that provides an exception applicable to residential property. In terms of this rule, liability for VAT will remain at 14% (the VAT rate before the increase) if the following three requirements are met:

  • the deed of sale was concluded before 1 April 2018; and
  • both the payment of the purchase price and the registration of the property will occur on / or after 1 April 2018; and
  • the VAT-inclusive purchase price was determined and stated as such in the deed of sale.

For purposes of this rule, “residential property” will include –

  • an existing dwelling together with the land on which it is erected;
  • any sectional title unit where such unit comprises a dwelling;
  • land bought together with a building package;
  • construction of a new dwelling by any vendor carrying on a construction business.

Commercial Property

There are no rate specific rules in relation to commercial property and therefor if the registration of the transfer of commercial property is effected in the Deeds Registry on/or after 1 April 2018 and payment is made to the Seller on/or after 1 April 2018, VAT at a rate of 15% will apply and be payable by the seller, irrespective of the date of conclusion of the agreement of sale.

We are currently in a transitional phase and the increase in VAT may cause uncertainty and practical difficulties, kindly contact us should you require assistance in this regard.

Leave a Reply

Your email address will not be published. Required fields are marked *