All property transactions in South Africa are subject to Transfer Duty or Value Added Tax. Which of the above taxes is applicable to a specific transaction?

If the Seller is registered as a Value Added Tax vendor
If the Seller is registered as a Value Added Tax vendor in terms of the Value Added Tax Act, 1991, the transaction will be subject to Value Added Tax.  For example, a property developer selling an apartment complex will be subject to Value Added Tax, but the sale of his private house, will not be subject to Value Added Tax because the property was not used in the furtherance of his business.

Value Added Tax is always the liability of the Seller who is responsible for paying the tax to the Receiver of Revenue from the proceeds of the sale.  It is therefore very important to ascertain from the seller what the required/expected price, nett of Value Added Tax, must be.  In order to accommodate the Seller, the Agent will have to draft the agreement to include a clause that the Purchaser will be liable to pay the Value Added Tax in addition to the selling price.

What happens if the Seller incorrectly assumes that he is not liable for VAT?
In the event of the sale of a property by a registered vendor in terms of the Value Added Tax Act, a Seller might incorrectly assume that a transaction is not subject to VAT, in which event the Seller will be liable for payment of Value Added Tax to the Receiver of Revenue out of the proceeds of the sale, effectively resulting in the Purchaser taking transfer of the property at a 14% discount.

What happens if a Vat registered Seller sells a going concern to another VAT vendor?

Although the applicable rate for Value Added Tax is 14%, Section 11(1)(e) of the Value Added Tax Act provides for zero percent Value Added Tax where a VAT registered Seller sells an income producing commercial property to another VAT vendor as a going concern.  Examples of such zero rated transactions may include a shopping complex or an office building.  However, a residential complex (except a hotel or guest house) is not a business as defined in the VAT Act.

What happens if VAT is not applicable?
Once you have ascertained that Value Added Tax is not applicable, then in all other property transactions Transfer Duty will be applicable.  It is common practice in South Africa that all Deeds of Sale include the Purchaser’s liability for transfer duty.

Transfer Duty is always payable by the Purchaser in accordance with the following:
 
1. If the Purchaser is a company, a close corporation or a trust, the transfer duty is calculated at approximately 8% of the gross selling price or the reasonable value of the property, whichever is higher.

2. If the Purchaser is a natural person, the transfer duty is calculated at a fixed rate based upon the Purchase Price or portion thereof as follows:

 
R0 to R 500 000,00    ZERO

R500 001,00 to R 1 000 000,00   5%

R1 000 000,00 and above         8%

Since 13 December 2002 the sale of shares or members interests in a property holding company or close corporation have been subject to transfer duty calculated on the market value of the property (not the selling price of the shares or members’ interest).

Examples of transactions that are specifically exempted from transfer duty.
 
1. A divorced or surviving spouse acquiring the ownership of immovable property previously registered in the name of his/her spouse is exempted from transfer duty in terms of Act 9 of 2006, Small Business Tax Amnesty and Amendment of Taxation Laws Act 2006.

2. Where the sale of the property falls within the definition of a supply of goods as defined in the Value Added Tax Act, 1991, the sale is exempted from transfer duty.

3. The sale of shares in a company or members interest in a close corporation where the company or close corporation holds residential property comprising of five or more units which has been used for residential rental units to persons unconnected to their owner is also exempted from transfer duty.

Legal information supplied by Johnnie Louw of BVZ Inc. Attorneys, Notaries and Conveyancers. Founded in 1987 BVZ offers a comprehensive range of legal services.  BVZ's current client base includes all major banks, most local authorities in the Gauteng area, all major estate agencies, as well as various leading insurance companies.  For further information, contact Johnnie Louw +27 11 787-9590   or   789-3050 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it.

For more information, please contact:  

Tony Ketcher – Director: Seeff Properties Randburg
Tel: 476-3536 
Cell: 083 307 8083
E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.
Web site: www.seeff.com

Issued by - Estelle van Staden: FVS Marketing and PR
Cell: 083 267 1669
Tel: (011) 791-2886
Fax: (011) 791-2886
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