Relief for property transactions
by Sandra Chetty
NO value-added tax (VAT) is due on fixed property sales by non-vendors or by vendors not holding the bricks and mortar as an enterprise asset.
Vendors acquiring such properties for taxable purposes were entitled to a notional input tax deduction that was limited to the transfer duty paid or exempted. However, effective January 10 this year, vendors were able to deduct the full amount of the notional input tax calculated by applying the tax fraction to the lesser of either any consideration paid or the open market value of the property. It is welcome news for VAT vendors planning to acquire fixed properties from non-vendors for taxable purposes.
Property developers have also not been forgotten. Previously, developers unable to sell their units – consider the recent recession and consequently depressed property market – may have temporarily rented them out to cover cash flow. In doing so, they faced an unexpected output tax adjustment as they were making exempt supplies of dwellings for VAT purposes.
The new legislation means developers have up to 36 months relief during which they are not required to make the “change in use” output tax adjustment. It allows developers time to find buyers before having to account to SARS for output tax. The new provision continues until January 1, 2015.