The 1% VAT increase which is set to take effect as of 1 April 2018 has caused much confusion amid sellers and agents alike. As with most before and after transformations, the complication arises in the grey area that lies between the start of a project and the big reveal date. Just as we decide between calling the construction zone the “old lounge” or “new dining room” during the renovation, sellers and agents are going to grapple with whether to apply the 14% or 15% VAT charge to transactions which began prior to 1 April, but were only concluded (that is, paid for and finalised) after 1 April. The key to finding an answer to this question is to know what is legally expected from you in various situations:
When selling your home
According to 67A(4) of the VAT Act, VAT payable by the seller of a residential property can be calculated at the time that the transaction is first agreed to provided that there is a written and signed agreement to the sale of the property dated before 1 April 2018 that includes the full sale price. If you have this signed contract with a buyer before 1 April, then 14% VAT may be applied to the transaction even though the registration of transfer for the property and payment only takes place after 1 April 2018.
When selling office space
However, the same rule cannot be applied to the sale of commercial real estate. In the case of these sales, the general rule of supply applies, which means that the applicable VAT rate will be 15% if the payment and conclusion of the transaction only occurs after 1 April.
When calculating your agent’s commission
In strict legal terms, you may calculate VAT at 14% if you receive the invoice for commission before 1 April, and at 15% if you receive the invoice for commission after 1 April. However, this calculation is a personal topic which should be discussed between the seller and their agent based upon the business relationship they’ve formed. Because an ongoing supply of services is supplied by the agent, it is difficult to put a timestamp on when the transaction comes to its official end. An arguably more reasonable way to go about the calculation is to therefore apply a time allocation to it. This would mean that if the agent began marketing your property on 2 March and the sale of your property was concluded on 2 April, then a 14% VAT charge can be applied to 50% of the commission, and the other 50% will carry a 15% VAT charge.
Final Words of Advice
The implications of the VAT increase can be confusing to fully understand and has seen most South Africans bracing themselves for the worst. While the increase does mean slightly tightened purse strings for most of us, it is by no means a cause for alarm for those who keep themselves up-to-date with the change. The key is to keep yourself informed by speaking to knowledgeable sources that you can rely on.
For more information please contact:
RE/MAX MASTERS – Roodepoort & Krugersdorp
Work Phone: 011 795 1032
Mobile: 079 047 5172