Sale of immovable property : selected transfer duty and value-added tax implications

• Published date: 01 September 2018
• Date: 01 September 2018
• Record Number: btclq_v9_n3_a4
• Pages: 22-30
• DOI: 10.10520/EJC-1110e10bc9
• Author: Des Kruger

22 © Siber ink

Sale of Immovable Property:

SELECTED TRANSFER DUTY AND VALUE-ADDED

TAX IMPLICATIONS

DES KRUGER

ABSTRACT

Sales of immovable property are a daily occurrence. While conventional

wisdom seems to be that all sales of immovable property by persons regis-

tered as vendors for value-added tax (‘VAT’) purposes are subject to VAT,

and accordingly not transfer duty, the author explains that this is not the

case where the immovable property being disposed of comprises residential

rental property owned by the vendor. In such circumstances, the sale is in fact

subject to transfer duty as the sale will not have been made in the course or

furtherance of the vendor’s enterprise. Where the residential rental property

forms part of a business that is sold as a going concern as contemplated in

section 11(1)(e) of the Value-Added Tax Act, 1991(‘the VAT Act’), the sale

thereof may be subject to VAT at the zero rate in certain specif‌ic circum-

stances.

Where immovable property is disposed of pursuant to a transaction falling

within the ambit of the Income Tax Act, 1962 (‘the IT Act’) corporate rules

(sections, 42, 44, 45 and 47 specif‌ically thereof), the purchaser and the seller

are deemed to be one and the same person. As a result, the sales will not be

subject to any VAT as supply requires two persons. The sale of immovable

property in these circumstances would therefore not be exempt from transfer

duty under section 9(15) of the Transfer Duty Act, 1949 (‘the TD Act’), as the

sale would not constitute a taxable supply, whether at 15% or 0%. However,

exemption from transfer duty is provided for in respect of transactions falling

within the ambit of sections 42, 43, 44, 45 and 47 of the IT Act (section

9(1)(l) of the TD Act), provided that the public off‌icer of that company has

made a sworn aff‌idavit or solemn declaration that such acquisition of property

complies with the provisions of section 9(1)(l) of the TD Act. A further specif‌ic

exemption from transfer duty is provided for in respect of an asset-for-share

transaction as contemplated in section 42 of the IT Act under section 9(15A)

of the TD Act. It is unclear how this exemption differs in substance from that

provided for under section 9(1)(l)(i) of the TD Act in relation to section 42

asset-for-share transactions.

The author further argues that sales of immovable property that are subject

to suspensive conditions only trigger a liability for transfer duty when, and if,

the suspensive conditions are fulf‌illed. This view is at odds with that adopted

by SARS. The article also considers the eff‌icacy of reinstatement agreements

where the original agreement has lapsed due to the suspensive conditions

not having been fulf‌illed and such original agreement is revived. The author

concludes that a liability for transfer duty is still only triggered when the new

due date for fulf‌ilment of the suspensive conditions are fulf‌illed.