Hike will have implications for buyers and sellers of commercial property
Commercial property buyers could find themselves forking out tens of thousands more, once the 1% VAT increase comes into effect
It all depends on who they are buying from.
“If the seller is a VAT vendor, then VAT is charged, as opposed to transfer duty,” explains Yianni Pavlou of Portfolio Property Investments.
“And if a property is acquired as a going concern and is income-generating on the date of transfer, then the purchase price includes VAT at 0%,” he says.
There may be other permutations so, before signing any agreement, buyers are advised to ask their accountants or lawyers as to whether the transaction meets the criteria for zero VAT rating, he says.
Non-VAT vendors will pay 1% more for any new off-plan property purchase agreements signed on or after April 1.
“This is not good news for non-VAT buyers, as this will equate to an extra R10 000 for every R1 million (of the property price).”
If both buyer and seller are VAT vendors, then the VAT amount can be refunded by Sars, but Maria Davey of Meumann White Attorneys says this could pose cash flow issues for buyers in the period between paying the VAT and waiting for the refund.
If the seller is a VAT vendor and the purchaser is not, the extra tax will be borne by the purchaser. “And that is where the real burden kicks in,” she says.
Although most commercial property owners and tenants are VAT vendors and can claim any additional tax back from Sars, Craig Guthrie, commercial specialist at Guthrie Colananni Attorneys, says the small players will feel the brunt of it.
“The increase of the VAT rate will only be felt by the small commercial property owners and tenants whose turnover falls under the compulsory VAT registration turnover threshold of R1m per annum.”
Parties involved in a commercial property sale transaction that is not zero rated will need to be “very familiar” with the special time of supply rules, so they can determine what rate of VAT will apply, Guthrie adds, as even if they are vendor-to-vendor deals, it is important to submit the correct VAT returns at the right rate to avoid penalties.
“The special rule applicable to immovable property is VAT must be charged either on registration of transfer or payment of the purchase price to the seller, whichever is the earlier. Therefore, agreements of sale concluded before the Budget speech where transfer will register after March 31 will attract VAT on the purchase price at the higher rate of 15%.
“If the purchase price included VAT, and there were no contractual adjustment mechanisms, the seller would be liable to pay over to Sars an additional and unexpected 1% of the purchase price.”