TRANSFER OF A PROPERTY: IS VAT OR TRANSFER DUTY PAYABLE?

a1_bA purchaser is responsible for payment of transfer cost when acquiring an immovable property, but it should further be established if the transaction is subject to the payment of VAT or transfer duty to SARS.

When an immovable property is transferred, either VAT or transfer duty is payable. To determine whether VAT or transfer duty is payable one should look at the status of the seller and the type of transaction.

VAT

If the seller is registered for VAT (Vendor) and he sells the property in the course of his business, VAT will be payable to SARS. A vendor is a person who runs a business and whose total taxable earnings per year exceed R1 000 000. He will then have to be registered for VAT. A further stipulation is that the property that is being sold must be related to his business from which he derives an income.

The Offer to Purchase should stipulate whether the purchase price includes or excludes VAT. If the Offer to Purchase makes no mention of the payment of VAT and the seller is a VAT vendor, it is then deemed that VAT is included and the seller will have to pay 14% of the purchase price to SARS. It is the seller’s responsibility to pay the VAT to SARS, except if the contract stipulates otherwise.

When a seller is not registered for VAT, but the purchaser is a registered VAT vendor, the purchaser will still pay transfer duty but can claim the transfer duty back from SARS after registration of the property.

Transfer duty

When the seller is not a registered VAT vendor it is almost certain that transfer duty will be payable on the transaction. A purchaser is responsible for payment of the transfer duty. Transfer duty is currently payable on the following scale:

  1. The first R750 000 of the value of the property is exempted from transfer duty.
  2. Thereafter transfer duty is levied at 3% of the value of the property between R750 000 and R1 250 000.
  3. Where the value of the property is from R1 250 001 up to R1 750 000, transfer duty will be R15 000 plus 6% on the value of the property above R1 250 000.
  4. If the value of the property falls between R1 750 001 and R2 250 000, transfer duty will be R45 000 plus 8% of the value of the property above R1750 000.
  5. On a property with a value of R2 250 001 and above transfer duty is R85 000 plus 11% on the value of the property above R2 250 000.

Transfer duty payable by an individual or a legal entity (trust, company or close corporation) is currently charged at the same rate.

Transfer duty is levied on the reasonable value of the property, which will normally be the purchase price, but should the market value be higher than the purchase price, transfer duty will be payable on the highest amount. Transfer duty is payable within six months from the date that the Offer to Purchase was signed.

In instances where a party obtains a property as an inheritance or as the beneficiary of a divorce settlement, the transaction will be exempted from payment of transfer duty.

Where shares in a company or a member’s interest in a close corporation or rights in a trust are transferred, the transaction will be subject to payment of transfer duty if the legal entity is the owner of a residential property.

Zero-rated transactions

This means that VAT will be payable on the transaction but at a zero rate. If both the seller and the purchaser are registered for VAT and the property is sold as a going concern, VAT will be charged at a zero rate, for instance when a farmer sells his farm as well as the cattle and the implements.

Exemption

Transfer duty, and not VAT, will be payable when a seller who is registered for VAT sells a property that was leased for residential purposes.

It is thus important for a purchaser to establish the status of the seller when buying a property. The seller who is registered for VAT should carefully peruse the purchase price clause in a contract before signing, to establish if VAT is included or excluded.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

TAX SEASON 2016: NON-PROVISIONAL TAXPAYERS’ DEADLINE

a2_bMany of our clients are not registered for provisional tax, nor are they required to be so registered. These non-provisional taxpayers should however take note thereof that their annual income tax returns (for the 2016 year of assessment which ended on 29 February 2016) are due shortly, and not only on 31 January 2017 as is the case for natural person taxpayers also registered for provisional tax.

All companies are automatically registered for provisional tax. Therefore, non-provisional taxpayers are typically individuals earning little or no income other than from a salary. These taxpayers therefore need to attend to their annual income tax returns with an increased sense of urgency to meet the looming deadline, which is 25 November 2016 for individuals filing returns by way of SARS’ eFiling system. (Those very few individuals who still submit returns manually should have filed their income tax returns by 23 September 2016 already.)

Government Gazette No. 40041 (dated 3 June 2016) identified those persons required to file annual income tax returns for the 2016 year of assessment. The primary exemption from the requirement to submit a return for tax resident natural persons is if the person earned only a salary from a single employer during the year which did not exceed R350,000, and income from interest for that person was also less than R23,800 (or R34,500 if the person is older than 65). The converse holds true though that if a person received income in excess of any of these amounts, they will be required to submit an income tax return for the 2016 tax year.

The Government Gazette also determines the dates by when the relevant persons are required to have submitted their returns by. Provisional taxpayers are annually afforded a slightly more lenient deadline to submit their income tax returns by as opposed to non-provisional taxpayers. This requires non-provisional taxpayers to be extra vigilant of the deadline to submit their annual income tax returns for the 2016 tax year by.

We therefore wish to remind our clients of their filing obligations with SARS and to contact us so that we may accumulate the information necessary to assist them in this regard. Failure to submit returns timeously may lead to penalties, as well as interest accruing on their accounts due to SARS. Administrative non-compliance penalties specifically will be levied if a person has more than one annual income tax return outstanding.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SARS RELEASES NEW RULING ON DOCUMENTARY REQUIREMENTS FOR VAT PURPOSES

a3_bIn February 2015 the South Atlantic Jazz Festival (Pty) Ltd successfully appealed a judgment of the Tax Court to the Full Bench of the Western Cape High Court (reported as ABC (Pty) Ltd v CSARS [2015] ZAWCHC 8). That judgment dealt with documentary proof required by the Commissioner for SARS to substantiate input tax claims submitted by taxpayers for VAT purposes, and specifically the scope of the provisions of section 16(2)(f) of the Value-Added Tax Act, 89 of 1991.

Since the judgment documentary proof linked to VAT input claims have been a focus of Government, with both the subsequent amendment of section 16(2)(f) as well as the introduction of section 16(2)(g). Especially the latter provision is important here and deals primarily with what documentary evidence will suffice as substantiating proof for VAT input claims submitted by a VAT vendor in the absence of for example an invoice received from the supplier, a bill of entry or credit note. The question in ABC above for example was whether a signed agreement could under these circumstances suffice as substantiating proof for an input tax claim submitted.

Section 16(2)(g) now reads that “… in the case where the vendor, under such circumstances prescribed by the Commissioner, is unable to obtain any document required in terms of [section 16(2)] (a), (b), (c), (d), (e) or (f), the vendor is in possession of documentary proof, containing such information as is acceptable to the Commissioner, substantiating the vendor’s entitlement to the deduction at the time a return in respect of the deduction is furnished…”

SARS has now released a binding general ruling (BGR36) on 24 October 2016 dealing with those circumstances under which the Commissioner will allow a VAT vendor to use alternative documentary proof to substantiate the vendor’s entitlement to an input tax deduction as contemplated in section 16(2)(g). In order to obtain the Commissioner’s approval to use alternative documentary proof in substantiating a deduction under section 16(2)(g), a VAT vendor must apply for a VAT ruling or VAT class ruling.

In terms of the ruling, a VAT vendor may only apply for approval under section 16(2)(g) to rely on documentary proof, other than the documents prescribed under section 16(2)(a) to (f), if the vendor –

  • has sufficient proof that it made reasonable attempts to obtain the documentary proof required by the Commissioner under section 16(2)(a) to (f);
  • was unable to obtain and maintain the documentation prescribed under section 16(2)(a) to (f) due to circumstances beyond the vendor’s control (see below); and
  • no other provision of the VAT Act allows for a deduction based on the particular document in the vendor’s possession.

BGR36 continues to list those circumstances when it would be considered to have been beyond the VAT vendor’s control to provide the otherwise required documentation:

  • When the supplier has failed to issue a tax invoice, debit note or credit note to the VAT vendor;
  • Where the supplier was contacted but failed to respond to the vendor’s request to be furnished with a complete tax invoice or correct document;
  • The supplier or vendor’s place of business has suffered damage as a result of for example a natural disaster, causing damage to its accounting records, with no possibility of the said records being retrieved or re-issued; or
    (d) The supplier has been deregistered as a vendor.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

HOME OFFICE EXPENDITURE

a4_bWith current day realities manifesting in ever increasing distances required to be travelled to get to an office, traffic congestion, etc. more and more employers are opting to give their employees the option of working from home. The proliferation of “home offices” has surfaced in dramatic fashion in recent times. It is therefore only natural that we have been experiencing an increased number of queries related to whether expenditure linked to home offices are tax deductible. With home office expenditure, we refer here specifically to those costs linked to occupying a specific space in a home for purposes of earning an income. This includes typically rent, interest paid on a bond, repairs, maintenance and other related costs.

Limitations to deductions for tax purposes in relation to home office expenditure is specifically dealt with by section 23(b) of the Income Tax Act, 58 of 1962. In essence it determines that home office expenditure is not deductible save in very strict circumstances, being:

  • where the part of the home used is used exclusively and regularly used for purposes of the taxpayer’s trade; and
  • on condition that the space so used must also have been specifically equipped for this purpose.

Home office expenditure will moreover not be deductible where the trade exercised involves employment or the holding of an office (such as a director for example), unless either:

  • the income earned is in the form of commission or any similar type of variable payment, and on condition that the duties of employment or office held are performed primarily outside of an office environment provided by an employer; or
  • the employment/office duties viewed holistically are mainly performed in the designated part of the home.

If either of the above two exceptions are met, home office expenditure will be deductible irrespective thereof that the taxpayer is an employee or the holder of a specific office. It is noted that section 23(m)(iv) in this regard also does not operate to limit deductions of home office expenditure more than is already the case in terms of section 23(b). (Section 23(m) ordinarily operates as the onerous provision severely limiting the tax deductions available to salaried individuals.)

As a final comment it should be pointed out that the above tests linked to whether home office expenditure is deductible or not all involves objective tests. SARS is also known to be extremely strict in its application of section 23(b). The Tax Administration Act, 28 of 2011, by virtue of section 102 provides that the burden of proof for showing that a deduction should be allowed rests on the taxpayer. SARS is therefore under no obligation to disprove any of the requirements necessary to qualify for home office expenditure. Rather, the taxpayer should be able to show that the space in question is exclusively and regularly used for business purposes and that it has been specifically equipped therefor. It should further illustrate that income earned comprises mainly a variable form of compensation and that no other space is available to the taxpayer, or that the services are performed mainly from the designated space at home.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)