VAT in Property Law

What is VAT ?
VAT is a tax charged on the supply of goods or services by a vendor (a person who has registered for VAT purposes, or who should be registered).

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 a Company, Trust or Close Corporation. 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 amount payable/ refundable to /by the South African Revenue Service.

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. If you cease trading, you are obliged to inform the South African Revenue Service within 21 days. Until the Receiver of Revenue has approved the cancellation of your registration you are obliged 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 South African Revenue Service has advised you of the approved cancellation date. All records pertaining to VAT must be kept for 5 years (which include the list of your assets and their values at the time you stopped trading).

VAT and Transfer Duty
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) 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 furthermore of an enterprise (any activity or business inside the Republic of South Africa carried on continuously or regularly which supplies 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: 0%
As a general rule, all goods and services are standard rated unless specifically zero-rated or exempt. Zero rated supplies are taxable supplies taxed at a rate of 0%. Section 11(1)(2) of the VAT act states that the sale of an enterprise may be zero rated where :
Both the supplier and recipient are vendors, and have agreed that the consideration for the supply is inclusive of VAT at a rate of 0%.
They have agreed in writing that such enterprise be sold as a going concern.
The enterprise is capable of separate operation and is "income earning".
The Act defines "commercial rental establishment" as an accommodation normally provided to 5 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 000.
"Residential rental establishment" on the other hand is defined as any commercial rental establishment in which no less than 70% of the persons to whom domestic goods and services are 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 residential property (even where rent exceeds R4 000 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 a going concern.

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