TRANSFER DUTY VS VALUE-ADDED TAX – WHICH IS PAYABLE?
When immovable property is transferred from a Seller to a Purchaser in South Africa, either Transfer Duty or Value-Added Tax (VAT) will be payable to the South African Revenue Service (SARS).
What is VAT?
VAT is a tax levied by a registered VAT vendor on the consumption of goods and services. A VAT vendor is registered as such at the South African Revenue Service (SARS) in terms of the Value-Added Tax Act 89 of 1991.
An entity or individual may voluntarily register for VAT if the total income earned in a 12-month period exceeds R50 000.00, but VAT registration becomes compulsory where the total value of taxable goods or services exceeds R1 million in a 12-month period.
VAT will be charged at the normal 15% rate.
What is Transfer Duty?
Transfer Duty is a tax levied on the value of a property and is applicable where immovable property is transferred.
Transfer Duty is charged on a gliding scale, determined annually by the Minister of Finance. At the time that this article was written, the first R1 210 000.00 of the purchase price is exempt from Transfer Duty.
The sale of immovable property will never be subject to the payment of both Transfer Duty and VAT, so it is important to determine which tax will be payable in which circumstances.
How to determine whether Transfer Duty or VAT is payable?
The tax status of the Seller will determine whether Transfer Duty or VAT is payable when immovable property is transferred.
1. If the Seller is a registered VAT vendor and the property being transferred, forms part of their vatable goods and it is sold in the ordinary course of their business, VAT will be payable.
An example of where the sale of the property forms part of the Seller’s enterprise, can include a developer selling newly developed properties. However, where a developer sells their private residence in their private capacity, Transfer Duty will be payable by the Purchaser.
2. If the Seller is not a VAT vendor, Transfer Duty will be payable.
3. If the Seller has previously claimed input VAT during or after the purchase of a property, the property will be classified as a vatable good and VAT will therefore be payable when the property is sold.
What if the Purchaser is registered for VAT, and the Seller is not?
According to section 16(3) of the Value-Added Tax Act, if the Seller is a non-VAT vendor, and the Purchaser is a VAT vendor, the Purchaser will be able to claim back the Transfer Duty that was paid, as notional VAT from SARS after registration, but only if the Purchaser’s ordinary course of business includes trading in property.
Who pays the Transfer Duty or VAT?
It is the Purchaser’s responsibility, by way of the conveyancer, to pay Transfer Duty to SARS before registration of the transaction, and it is the Seller’s responsibility to pay VAT to SARS in the Seller’s year of assessment.
Are there transactions that are exempt from Transfer Duty?
As stated above, currently, where the value of a property being transferred is below R1 210 000.00, no Transfer Duty will be payable.
Section 9 of the Transfer Duty Act 40 of 1949, lists transactions that are completely exempt from Transfer Duty, where the Purchaser is one of the following:
1. Government institutions;
2. Municipalities and water service providers;
3. Public benefit organisations;
4. Public hospitals;
5. Heirs or legatees;
6. A joint owner upon partition of the property;
7. A joint owner of property who acquires sole ownership;
8. A surviving or divorced spouse who acquires the sole ownership in the whole or any portion of property registered in the name of his/her deceased or divorced spouse;
9. Persons married in community of property;
10. Rectification transfers (correction of errors);
11. Partners;
12. Transfers to trustees, administrators, beneficiaries and insolvent persons;
13. Surety pays consideration and seeks transfer;
14. Void transactions;
15. Foreign companies;
16. Re-acquisition of expropriated property;
17. VAT transactions;
18. Conversion from share block to sectional title.
Please contact JVN Incorporated for any queries or questions.
