CONCLUSION
In property law we seem to be dealing with Value Added Tax
(“VAT”) transactions more and more and there seems to be
uncertainty on certain issues.
WHAT IS VAT?
VAT is tax charged on the supply of goods or services by a
vendor (a person who has registered for VAT purporses, or should
be registered). Vendors registered for VAT are obliged to
collect VAT from their clients or customers on behalf of the
Receiver of Revenue.
WHO IS OBLIGED TO REGISTER FOR VAT?
Every person who makes taxable supplies in a business with an
expected yearly turnover of R300 000.00 or more. A “person”
includes Private individuals, Companies, Trusts or Close
Corporations. A person with an annual turnover of less than R300
000.00 may still register (“voluntary registration”), but must
then comply with all provisions of the VAT Act, Act 89 of 1991
(as amended). If your turnover is less than R20 000.00 however,
you may not register for VAT.
OUTPUT TAX AND INPUT TAX
The VAT that is charged to customers is called OUTPUT TAX. The
VAT paid by you as a vendor on your purchases from another
vendor is called INPUT TAX. The OUTPUT TAX less the INPUT TAX in
a certain tax period results in the amounts payable/refundable
to/by the Receiver of revenue.
CANCELLATION OF REGISTRATION
Your registration can be cancelled if your turnover falls below
R300 000.00 a year, but you are obliged to cancel your
registration if your annual turnover is less than R20 000.00. If
you cease trading, you are obliged to inform the Receiver of
Revenue within 21 days. Untill the Receiver of Revenue has
approved the cancellation of your registration you are oblidged
to comply with all obligations in terms of the Act i.e. you are
obliged to submit returns (nil returns if the business has
ceased trading) until the Receiver of Revenue has advised you of
the approved cancellation date. All records pertaining to VAT
must be kept for 5 (five) years (which will include the list of
your assets and their values at the time you stopped trading).
CANCELLATION OF REGISTRATION
VAT and Transfer Duty are mutually exclusive, i.e. if the Seller
is a vendor, VAT will be charged on the transaction and not
transfer duty. If the Seller is not a vendor, transfer duty will
be levied on the transaction and not VAT. If the Purchaser in a
transaction is a vendor, he can claim VAT on the transaction (up
to the amount of transfer duty paid) back from the Receiver of
Revenue within a two month period of such transaction – i.e. in
the following tax period).
TAXABLE SUPPLIES
A taxable supply is any supply of goods or services by a vendor
in the course or furtherance of an enterprise (any activity or
business inside the Republic of South Africa carried on
continuously or regularly which supplied goods or services to
other people at a charge, whether or not for a profit). Tax is
charged at one of the following rates;
- Standard rate, currently 14%
- Zero rate, i.e. 0%
As a general rule, all goods and services are standard rated,
unless specifically zero rated or exempt. Zero-rated are taxable
supplied taxed to the rate of 0%. Section 11 (1) (2) (c) of the
VAT Act states that the sale of an enterprise may be zero rated
where: -
Both the Seller and Purchaser are VAT vendors, and have agreed
that the consideration for the supply is inclusive of VAT at a
rate of 0%. (In the case of the Seller, the will be deemed as a
“Vendor” whenever his annual total turnover exceeds R300 000.00.
• The Seller and Purchaser have agreed in writing that such
enterprise be sold as a going concern.
• The Enterprise being sold must be a going concern and capable
of separate operation and is “income earning”.
• The Seller and Purchaser must have agreed in the Deed of Sale
that the enterprise will be an income earning activity on the
date of transfer.
Residential rentals are exempt from VAT. The act defines
“commercial rental establishment” as a “accommodation …normally
provided to 5 (five) or more persons at a daily, weekly or
monthly charge…or residential accommodation which is rented out
for continuous periods not exceeding 45 days and where the
annual receipts from the letting of same exceed R48 0000.00.
Residential rental establishment” on the other hand is defined
as any commercial rental establishment rental in which not less
than 70% of the person to whom domestic goods and services as
supplied, reside for periods exceeding 45 days.
CONCLUSION
It seems clear from the Act and the definitions that the
legislator did not intend that the letting of the residential
property (even where the rent exceeds R4 000.00 monthly), be
included in the ambit of going concerns (capable of zero rating)
and that only guesthouses, hotels and bed and breakfasts should
be seen as “going concerns” in the eyes of the Receiver of
Revenue.
It follows then that a zero rated property transaction does not
pertain to purely residential properties. The purchase of a
vacant plot of land by a Developer who wishes to develop same
for residential / commercial purposes will also not qualify as
the purchase of a going concern.
