When is transfer duty payable on a transaction and when will VAT be payable?
It is important to remember that VAT will only be levied by the Receiver on immovable property if the property can be divined as a “Taxable concern”.
Therefore a private residential property will seldom be seen as a “Taxable Concern” unless it generates taxable income in the form of rental income or it conducts a business for example a guesthouse.
It is important to remember that only one form of tax will be applicable when immovable property is sold and transferred, either VAT or Transfer Duties. Both will never be payable simultaneously,
Although certain exceptions do exist the following guidelines are provided to determine whether VAT is applicable.
- The question to be answered, to determine whether VAT is applicable is whether the seller is a registered VAT vendor or not. If he is registered for VAT, VAT will be payable by the seller to the Receiver of Revenue and not Transfer Duties
The seller will then be liable to the Receiver of Revenue for 15% of the selling price payable to the Receiver with lodgement of his next VAT return. Normally the purchase price includes VAT in the absence of any other arrangement, and if the seller demands VAT to be paid by the purchaser over and above the purchase price it will clearly have to be specified in the purchase agreement.
- In the event where the purchaser and the seller are both registered VAT vendors and the property is sold as a running concern VAT will be applicable but at a zero rating, meaning that no VAT will be payable.
- In the event where the seller is not a registered VAT vendor, but the purchaser is, Transfer Duties will be payable by the purchaser and not VAT and the purchaser will be entitled to reclaim the Transfer Duties from the Receiver in his capacity as a VAT vendor.
- Although the liability for payment of VAT vests with the seller the liability for payment of Transfer Duties vests with the purchaser and if neither the seller nor the purchaser is registered for VAT or only the purchaser is registered for VAT, Transfer Duties will always be payable and not VAT.
- The scale at which Transfer Duties are levied in the event of the purchaser being a natural person is as follows:
|Transfer duty calculation
|R0 to R900 000
|R900 001 to R1 250 000
|3% of property value above R750 000
|R1 250 001 to R1 750 000
|R10 500 + 6% of property value above R1 250 000
|R1 750 001 to R2 250 000
|R40 500 + 8% of property value above R1 750 000
|R2 250 000 to R10 000 000
|R80 500 + 11% of property value above R2 250 000
|R10 000 000 +
|R933 000 + 13% of property value above R10 000 000
In terms of Section 9 of the Transfer Duties Act (Act 40 of 1949) there are certain exemptions for payment of Transfer Duties which need to be taken into account.