SA VAT - How the VAT increase affects property sales
The power of one: a phrase that has been quoted in many clichéd motivational poster, but one whose power has never quite been fully grasped – until now. The 1% VAT increase which is set to take effect as of 1 April 2018 has set the country alight with many burning questions, most of which cannot be comprehensively answered by our knowledgeable friend Google.
“Raising VAT to 15% has muddied the waters of long-standing transactions in many sectors- none more so than in the property sector. Now more than ever, buyers and sellers need to pay particular attention to VAT charges and how the increased rate will affect their real estate transactions,” warns Adrian Goslett, Reginal Director, and CEO of REMAX of Southern Africa.
As with most before and after transformations, the complication arises in the grey arear that lies between the start of a project and the big reveal date.
Just as we decide between calling the construction zone the “old lounge” or “ new dining room” during the renovation, consumers are going to grapple with whether to apply for the 14% or 15% VAT charge to transactions which began prior to 1 April, but only concluded(that is, paid for and delivered to the client) after 1 April.
The key to finding an answer to this question is to what is legally expected from you in various situations.
VAT ON RESIDENTIAL PROPERTY SALES
According to 67A(4) of the VAT Act, VAT payable by the seller of a residential property can be calculated at the time that the transaction is first agreed to provide that:
- There is a written signed agreement to the sale of a property dated before 1 April 2018
- The property has been agreed to within the contract
In short, if you sign a contract with a buyer before 1 April, then 14% VAT may be applied to the transaction even though the registration of transfer for the property and payment only takes place after 1 April 2018.
VAT ON PROPERTY COMMERCIAL PROPERTY SALES
However, the same rule cannot be applied to sale of the commercial real estate. In the case of these sales, the general rule of supply applies, which means that the applicable VAT rate will be 15% if the payment and conclusion of the transaction only occurs after 1 April.
VAT ON AGENTS COMMISSION
This calculation is a personal topic which should be discussed between the seller and their agent based upon the business relationship they’ve formed. Because an ongoing supply of services is supplied by the agent, it is difficult to put a timestamp on when the transaction comes to its official end. In strict legal terms, you may calculate VAT at 14% if you receive the invoice for commission after 1 April. However, an arguable more reasonable way to go about the calculation is to apply a time allocation to it. This would mean that if the agent began marketing your property on 2 March and your sale of your property was concluded on 2 April, then a 14% VAT charge can be applied to 50% of the commission, and the other 50% will carry a 15% VAT charge.
FINAL WORDS OF ADVICE
The increase in VAT has seen most South Africans bracing themselves for the worst. While the increase does not mean slightly tightened purse strings for most of us, it is by no means a cause for alarm for those who keep themselves up-to-date with the change. “The implications of the VAT increase can be confusing to fully understand. But, as long as you keep yourself informed throughout the process and speak to the knowledgeable sources that you can rely on, you can avoid any financial blunders that can occur as a result of this change. “ Goslett concludes.
Courtesy: The Agent - Estate Agency Affairs Board