Can transfer duty be claimed as an input VAT deduction?
22 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: A client
bought agricultural land to use in the name of a company. Unfortunately, the registration of the
company took a very long time and he bought the land in his personal
capacity. The lawyer made the statement
that the client can claim/deduct the transfer fees, but needs to consult his
accountant. This is the second lawyer to
do so. As far as I understand, according
to the SARS Transfer Duty Guide, the only deduction or exemption is on
residential property under the amount of R 750 000.00.
Could you please tell me if the lawyer’s statement is
valid? If so, where can I find the
information stating this?
A: We agree with
you that with respect to Transfer Duty the duty is levied on "the value of any
property (which value shall be determined in accordance with the provisions of
sections 5, 6, 7 and 8) acquired by any person” and that the Act does not allow
for deductions to be made.
We submit that what the lawyers refer to is in fact an input
tax deduction. We can’t comment on
whether or not the deduction can be made as we don’t know if the individual
(your client) is registered as a VAT vendor and whether he (not the company) is
using the property for purposes of making taxable supplies. We assume that the land wasn’t subsequently
transferred to the company.
The principle here is, in terms of paragraph (b) of the
definition of input tax in section 1(1) of the Value-Added Tax Act, that "an
amount equal to the tax fraction ...of the lesser of any consideration in money
given by the vendor for or the open market value of the supply (not being a
taxable supply) to him by way of a sale on or after the commencement date by a
resident of the Republic (other than a person or diplomatic or consular mission
of a foreign country established in the Republic that was granted relief, by
way of a refund of tax as contemplated in section 68) of any second-hand goods
situated in the Republic” will be input tax.
Fixed property is normally second-hand goods and the
important point is that it is in respect a supply that is not a taxable
supply. The fact that Transfer Duty was
paid would indicate that it was not a taxable supply.
The vendor would then be able to make a deduction of the
input tax to the extent that payment was made - see section 16(3) read with
section 9(2)(d) of the Value-Added Tax Act.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.