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Can transfer duty be claimed as an input VAT deduction?

22 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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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.


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