TRANSFER DUTY VS VAT

Selling Property? Here’s the Scoop on Who Pays: Transfer Duty or VAT!

What is Value Added Tax?
The Value – Added Tax Act No. 89 of 1991 (VAT Act) came into effect on 30 September
1991, provisioning for an indirect tax, commonly referred to as Value Added Tax (VAT), to
be levied on the supply of goods and services supplied by a registered VAT vendor in the
course and furtherance of any business carried on by such a vendor.

It is important to understand that the VAT Act defines “goods” as any real right in any fixed
property, to the exclusion of any right held under a mortgage bond/pledge of any fixed
property. So, the disposal of property could be subjected to VAT, provided such a
transaction falls within the ambit of the VAT Act.

What is Transfer Duty?
The Transfer Duty Act No. 40 of 1949 (TD Act) came into effect on 01 January 1950,
provisioning for a tax levied on the value of a property acquired by any person. The
purpose of this is to generate a form of income for national government as such a levy is
payable into the National Revenue Fund.

Section 2 of the TD Act makes provision for transfer duty to be imposed on any property
which is acquired by a person by way of a transaction. Transfer duty can also be imposed
on the amount by which the value of a property has been enhanced.

Now… let’s delve a little deeper into the importance of knowing whether VAT or
Transfer Duty is applicable to your transaction
The first step is to ascertain the status of the Transferor/Seller.

Make use of this two-fold nested test question:
Is the Seller/Transferor is a vendor, as defined in the VAT Act, for purposes of the
transaction? The likelihood is that VAT will be payable, however further enquiry is
necessary.

Is the Seller/Transferor is a vendor, as defined in the VAT Act?
How do I know who is a registered VAT vendor? Well, it’s quite easy, simply request the
vendor to provide their VAT registration certificate also known as a VAT 103 or visit the
SARS website @ www.sars.gov.za, on the filing page and use the VAT Vendor Search
function.

For purposes of this transaction?
Purpose is imperative here as the disposal of a vendor’s property is to be linked to his
business. A vendor is considered to be someone, carrying on a business/enterprise on a
continuous/regular basis, within the Repubic or partially within the Republic, and through
the course of this business, goods and services are supplied in exchange for a
consideration payable by the Transferee/Purchaser of those goods and services supplied.

Yes, Yes, Yes!!!
If this two-fold, nested test question is answered affirmatively, VAT becomes payable on
the transaction. The onus then lies on the Seller to ensure that negotiations include VAT.
If the VAT levied on such a transaction is unspecified in the deed of sale, consider the VAT
inclusive in the price specified in the deed of sale as it is then deemed to be inclusive of
the Purchase Price. Conveyancers and Real Estate Agents must be fastidious and
exercise great caution in drawing up deeds of sales when acting on behalf of developers

So! VAT does not apply to me, Does this mean that I have to pay Transfer Duty?
Transfer Duty certainly becomes payable in the event that VAT is not applicable to your
transaction. This duty is levied on the fair – market value of the property being disposed of
and is payable by the Purchaser. In practice, this amount is paid into the Conveyancers
Trust Account who then pays it over to the Receiver on behalf of the purchaser. A transfer
duty receipt (TR) is provided to the conveyancer which serves as proof that transfer duty
is paid.

Knowing whether Transfer Duty or VAT applies can make or break your property deal!

Look out for Part 2 of this article where we will exolore certain VAT exemotions apolicable
to Property Transfers.