In the Minister of Finance’s Budget Speech on 21 February 2018, he announced that the rate of VAT will increase from 14% to 15% from 1 April 2018.
Since the announcement, South African consumers have become aware of the effect of the increase of the VAT rate on their monthly budget. However, the effect of the increase of the VAT rate has far-reaching consequences, specifically on fixed property transactions where the Seller is a VAT vendor and VAT is payable on the purchase price.
The South African Revenue Services (SARS) applies the general rule that the rate at the general time of supply is applicable. It further defines the general time of supply as “the date at which any payment of the VAT-inclusive price (consideration) for the supply is made, or an invoice is issued in respect of the supply – whichever event occurs first”.
When this general rule is applied to fixed property transactions, this means that the rate that applies to specific transaction will be the rate of VAT on the date of registration of the property, or the date that the purchase price is paid to the seller, whichever event occurs first. SARS also specifically states that when a deposit is paid and held in the trust account of the conveyancer, “the payment will not trigger the time of supply as it is not regarded as payment of the purchase price at that point in time”.
However, there is an exception to the aforementioned rule – where a purchaser purchased a residential property before the rate of VAT increased, but registration and payment of the purchase price takes place on or after 1 April 2018. In this instance, the VAT payable on the purchase price is based on the rate that applied before 1 April 2018, i.e. 14%. This exception will only apply to a transaction where:
- there was a written agreement to purchase a residential property before 1 April 2018;
- the payment of the purchase price and the registration of transfer will occur after 1 April 2018; and
- the purchase price was determined and contained in the aforementioned agreement.
For purposes of the exception, SARS further defines the term “residential property” as:
- “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 to be erected on the land; or
- the construction of a new dwelling by any vendor carrying on a construction business.”
Should the transaction not meet the abovementioned requirements and registration and the payment of the purchase price take place after 1 April 2018, the exception will not be applicable to the transaction and the rate of VAT, i.e. 15%, at registration and the payment of the purchase price will be applicable will be payable.
Should you require further information regarding the increase in the VAT rate, SARS has released a concise frequently asked questions guide relating to the increase in the VAT rate on their website, which can be found above.
(Source: SARS Guide (published 21 February 2018) - Value-Added Tax Frequently Asked Questions: Increase in the VAT rate)