Does s11(e) of the VAT Act apply to the purchase of sectional title units from a developer?
12 May 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: A client wants
to purchase 27 unfurnished units in a sectional title block from a developer as
the developer does not have sufficient funds to complete the work. Will this be
classified as zero rated?
A: A transaction
will attract VAT if the following four requirements are met per s7 VAT Act:
A supply – in terms of the definition of
‘supply’ in s 1 of the VAT Act, this term includes a sale, rental agreement,
instalment credit agreement, as well as all other forms of supply, whether
voluntary, compulsory or by operation of law, irrespective of where the supply
Should be a supply of goods or services –
‘services’ is very widely defined and includes the granting, cession or
surrender of any right or the making available of any facility or advantage.
The supply of goods or services should be made
by a vendor – a person who is required to be registered for VAT under the VAT
Act must charge VAT on his taxable supplies.
The supply should be made in the course or
furtherance of an enterprise.
The sale of the unfinished property by the developer to
another developer will be a supply (s1). Whether it will be a taxable supply
depends on the purpose of use per (4) above. If the old developer built to use
in the supply of residential accommodation then no VAT would be claimable and
no VAT output would be payable. However if the developer developed for sale as
developer in the course of his enterprise as developer the sale would trigger
The same principles apply to the purchaser, there is he
going to us the unfinished building in the course of making taxable supplies in
his enterprise? Note that where VAT applies to the sale (seller levies VAT) for
the purchaser, no transfer duty will apply per s 9 (15) Transfer Duty Act
subject to the provisions of the section being met.
The supply will only qualify for the rate of zero per cent
if it is the supply of a going concern.
We don’t have enough information to provide guidance in this
respect. From the facts (unfinished) we
accept that the section 11(1)(e) requirement (that it must "be an
income-earning activity on the date of transfer thereof”) may not be met.
You mention that the supply is from one Pty Ltd to another
Pty Ltd, but it doesn’t seem to be a supply contemplated in section 42 or 45 of
the Income Tax Act. The supply is
therefore not in terms of section 8(25).
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.