How Does the VAT Increase Affect Fixed Property Sales
PUBLISHED 26 MAR 2018
Section 67A(4) of the VAT Act - a knight in shining armour for residential property sales deals?
now the whole of South Africa is aware of the increase in the VAT rate
to 15%, announced during the 2018 Budget Speech. The increase in the VAT
rate (the first since 1993) is effective from 1 April 2018 and has
raised a number of questions regarding the VAT implications of
transactions that are currently being concluded. One of these questions
is how does the increased VAT rate affect fixed property sales that are
currently in progress or being negotiated (i.e. before 1 April 2018)?
question stems specifically from the application of the time of supply
rules regarding the sale of fixed property. If a VAT vendor (for example
a property developer) has signed a sales agreement on 1 January 2018,
but both the payment of the sales price and the transfer of the fixed
property is effected on or after 1 April 2018, which VAT rate applies to
the transaction – 14% or 15%?
Per section 9(3)(d)((ii) and (iii)
of the VAT Act, fixed property is supplied under a sale at the earlier
of the dates on which registration of the transfer of the fixed property
at the Deeds Office takes place or when any payment in respect of the
consideration for such supply is made by the purchaser.
now at hand is where a VAT-registered property developer enters into a
sales agreement with a purchaser on 1 January 2018 for the sale of a
unit with a price being R10m (inclusive of VAT). Both parties sign the
agreement on 1 January 2018, construction commences before 1 April 2018,
concludes thereafter and the resultant registration of the transfer of
the property in the Deeds Office is effected after 1 April 2018. Payment
is made on transfer date.
Per the fixed property time of supply
rules, the time of the supply takes place after 1 April 2018 effectively
resulting in the transaction being subject to VAT at 15%. The seller
ends up receiving less from the sale or conversely the purchaser ends up
Luckily, there is a knight in shining armour –
section 67A(4) of the VAT Act. Almost hidden away at the end of the VAT
Act, the section has not often been looked to for relief considering
that the VAT rate has remained at 14% since 1993.
In short, the
section provides that, subject to certain conditions, the VAT rate that
is effective on the date that a written sales agreement is entered into
will apply. The 14% VAT rate would apply to the supply of fixed property
where, before the date on which an increase in the VAT rate becomes
effective (i.e. 1 April 2018), a written agreement is concluded and all
of the following apply:
The sale of fixed property consists of any residential dwelling (i.e. not a commercial property);
price paid in respect of the sale or construction in question was
determined and stated in the written agreement, as in force before the
increase date, and that agreement was signed by the parties thereto
before the increase date; and
The supply of such fixed property under the written agreement is deemed to take place on or after the increase date.
the above, it follows that specifically residential property developers
could benefit from the application of section 67A(4). The sale of
non-residential properties / commercial properties could therefore be
subject to the 15% VAT rate if the time of supply is on or after 1 April
2018 – parties involved in these transactions are best advised to
review their sales agreements to ensure that provision is made for the
increased VAT rate and appropriate mechanisms are in place.
This article was originally published on Bizcommunity.com