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The VAT rate increase and real estate transactions

Friday, 09 March 2018   (0 Comments)
Posted by: Authors: Gerhard Badenhorst and JD van der Merwe
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Authors: Gerhard Badenhorst and JD van der Merwe (CDH)

On 21 February 2018, former Finance Minister Malusi Gigaba delivered the annual budget speech. During this speech, what proved to be a very controversial decision was revealed: the Value Added Tax (VAT) rate would be increased from 14% to 15%, effective 1 April 2018. This marks the first VAT increase since 1993 (when we saw an increase of 4%). 

VAT is payable on many real estate transactions, and in those cases it is usually payable by the seller of the property. Accordingly, conveyancing is not immune to the VAT rate increase. What conveyancers have to grapple with, however, is the applicability of the new VAT rate of 15% to current real estate transactions, and especially those involving residential property. Will all currently contemplated transactions be subjected to 15% VAT as of 1 April 2018? 

The general rule with regards to the sale of fixed property is that VAT is payable by the seller on the earlier date of when the property is registered in the name of the purchaser, or when any payment is made in respect of consideration for the supply of such property, and the VAT rate in place at such time is applicable. However, with regard to a VAT rate increase, the real estate industry is afforded an exception regarding residential property. 

Section 67A(4) of the Value Added Tax Act, No 89 of 1991 (VAT Act) provides that:

  • where a written and signed agreement is concluded before 1 April 2018 for the sale of a dwelling (including a unit in sectional title and a share in a share block scheme and the construction of a new dwelling by a construction contractor), and 
  • the price was agreed upon and stated in the contract, 
  • but the registration of transfer of the immoveable property only takes place, and payment is made after 1 April 2018, 
  • then the rate applicable will be the rate which “would have been levied had the supply taken place on the date on which such agreement was concluded”, ie 14%. 

Thus, as long as a signed sale agreement, which contains a clear stipulation of the agreed price, was concluded before 1 April 2018, the VAT payable will be calculated using the outgoing rate of 14%, despite the fact that transfer may only take place after 1 April 2018. 

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