SARS has raised the VAT percentage from 14% to 15% with effect from 1 April 2018. This raised many questions relating to the sale of property. For the purposes of this article, we will look at 3 of them.
Firstly, how does this impact the commission I have to pay an estate agent as a seller?
To answer this question, it is imperative to establish when commission falls due to the agent. If the agreement stipulates that the commission accrues to the agent only on registration of transfer, the date of registration determines the percentage of VAT to be levied. If this is after 1 April, 15% VAT is payable on the commission. It has been established that the mandate agreement (assuming it simply states the % commission plus VAT without a specified % for VAT) tacitly implies that the agent will be able to collect the applicable rate of VAT should there be a change in VAT during the relationship. Most agencies in Port Elizabeth, however, have a clause in their standard pre-printed agreements of sale stipulating that commission accrues on fulfilment of suspensive conditions. This means that in most cases the date of fulfilment of suspensive conditions (approval of bond as an example) will be the date to determine the rate of VAT applicable. If a mandate was signed prior to 1 April, the property is sold prior to 1 April, conditions fulfilled prior to 1 April and registration of transfer takes place after 1 April, VAT on commission will be payable at 14%.
The second question that arises is the purchase price of properties bought from a developer at an agreed price with completion and registration of the unit taking place after 1 April. Does the developer have to pay 15% VAT on the purchase price and therefore will recoup it from the purchaser? With developments, the specific time of supply rules applicable to fixed property is deemed as the earlier of registration date or date of payment resulting in an increase of VAT to 15% for transfers registered after 1 April 2018. A concession was however made in respect of residential property transactions and the 14% rate will continue to apply where:
*The price of sale was determined and stated in the agreement;
*The agreement was concluded (signed) by the parties before 1 April 2018;
*Payment and registration after 1 April 2018.This concession only applies to the sale of residential property.
The last issue is around VAT payable on the attorney’s fees by the purchaser. If I have been given my statement of account reflecting 14% VAT and registration is only going to take place after 1 April, do I have to pay the increased VAT amount as the attorney takes his fee on registration? The answer is no. The conveyancer will raise the invoice prior to 1 April which means that the fee accrues prior to 1 April with VAT payable at 14%. It is important to note that the invoice can only be raised if all suspensive conditions have been met.