We all know by now that the VAT rate increased from 14% to 15% on 1 April, but how does that affect your residential property sale/purchase?
We are talking big money here – if for example you bought a house from a developer for R10m + VAT, that extra 1% adds R100,000 to your cost. Fortunately a little-known (until now) section of the VAT Act provides some relief to residential property buyers.
This is what SARS has to say about it (slightly simplified) –
Question – “Is there a rate specific rule which is applicable to me if I signed the contract to buy residential property (for example, a dwelling) before the rate of VAT increased, but payment of the purchase price and registration will only take place on or after 1 April 2018?”
Answer – “Yes. You will pay VAT based on the rate that applied before the increase on 1 April 2018 (that is 14% VAT and not 15% VAT).
This rate specific rule applies only if –
- You entered into a written agreement to buy the dwelling (that is “residential property”) before 1 April 2018;
- Both the payment of the purchase price and the registration of the property in your name will only occur on or after 1 April 2018; and
- The VAT-inclusive purchase price was determined and stated as such in the agreement.
For purposes of this rule, “residential property” includes –
- An existing dwelling, together with the land on which it is erected or any other real rights associated with that property;
- So-called plot-and-plan deals where the land is bought together with a building package for a dwelling to be erected on the land; or
- The construction of a new dwelling by any vendor carrying on a construction business.”
But what about commercial property?
Let’s quote SARS again on property generally (once again, slightly simplified) –
Question – “How will the rate increase work generally for fixed property transactions?”
Answer – The rate of VAT for fixed property transactions will be the rate that applies on the date of registration of transfer of the property in a Deeds Registry, or the date that any payment of the purchase price is made to the seller – whichever event occurs first.
If a “deposit” is paid and held in trust by the transferring attorney, this payment will not trigger the time of supply as it is not regarded as payment of the purchase price at that point in time.
Normally the sale price of a property is paid to the seller in full by the purchaser’s bank (for example, if a bond is granted) or by the purchaser’s transferring attorney. However, if the seller allows the purchaser to pay the purchase price off over a period of time, the output tax and input tax of the parties is calculated by multiplying the tax fraction at the original time of supply by the amount of each subsequent payment, as and when those payments are made. In other words, if the time of supply was triggered before 1 April 2018, your agreed payments to the seller over time will not increase because of the increase in the VAT rate on 1 April 2018.