This article will discuss the difference between Transfer Duty or Value Added Tax and which one is applicable to your transaction
When immovable property is sold transfer duty or VAT is always payable. The one or the other is always applicable.
The difficulty arises when determining which one you will need to pay.
There are a few easy steps that you can follow.
- STEP ONE : IS THE SELLER A VAT VENDOR FOR PURPOSES OF THIS TRANSACTION
Is the Seller a VAT Vendor? If the answer is YES, then VAT will very likely be payable. If the answer is no, then transfer duty will be payable. (REFER TO ITEM 3 BELOW)
It is important for the discussion to understand what a VAT Vendor is in terms of the Value Added Tax Act No 89 of 1991 (“The VAT Act”).
..A VAT vendor is a person, business, trust, or other entity that is registered with the government’s revenue service, and is obligated to pay VAT on purchases, and levy VAT on sales of goods or services. You are obliged to become a VAT vendor in South Africa if total sales in a calendar year exceed R1 million…
However, a person may choose to register voluntarily for VAT, if the taxable supplies made in the past 12 months, exceeded R50 000.00
- STEP TWO : WHAT DOES “FOR PURPOSES OF THIS TRANSACTION MEAN”
The property must have been supplies in the course or furtherance of the seller’s enterprise (business).
The Seller will therefore need to ensure the sale price which is negotiated included VAT.
Once you have established that the seller is a VAT Vendor for purposes of the transaction, it is imperative to note that the Seller pays the Receiver the VAT and then the VAT is claimed from the Purchaser.
The Seller is in all cases responsible to pay VAT to the Receiver, whether it is included in the purchase price or not.
- THE ANSWER IS NO AND TRANSFER DUTY IS PAYABLE
Once you have established that the Seller is not a VAT Vendor for purposes of the transaction or that the transaction is VAT exempt, transfer duty related questions must be asked.
STEP ONE: IS THE TRANSACTION TRANSFER DUTY EXEMPT?
Section 9 of the Transfer Duty Act provides for a number of instances where a transfer of immovable property will be transfer duty exempt.
STEP TWO: AT WHAT RATE IS TRANSFER DUTY PAYABLE?
Transfer duty is payable on a sliding scale which is amended from time to time by the minister of finance.
This article should not be construed as legal advice and has been produced for marketing purposes.
This article was written by M Van Heerden Attorneys, Notaries and Conveyancers.