VAT SNAGS IN PROPERTY SALE AGREEMENTS

by Taryn Davies Stevens • 2 MIN • 403 Words

The aspect often overlooked in property transactions is the matter of Value Added Tax (VAT) and its implications for both parties involved. While property sale agreements typically address this issue, there are instances where they remain silent on VAT. In such cases, clarity is essential to avoid potential financial complications.

According to Section 2(1) of the Alienation of Land Act 68 of 1981, any agreement for the sale of immovable property must be documented. Within such agreements, the parties must agree on the property being sold and the purchase price. Crucially, the agreement should specify whether VAT is applicable to the purchase price, as this can affect the tax obligations of both the seller and the buyer.

VAT is imposed on the value of goods or services provided by a registered VAT vendor as part of their business activities. Immovable property falls under the definition of "goods" in the Value-Added Tax Act 89 of 1991, thus making it subject to VAT. Unlike transfer duty, which is typically paid by the buyer, VAT is the responsibility of the seller, particularly if the seller is a VAT vendor.

In cases where VAT applies to the sale, the agreement should explicitly state whether the purchase price includes or excludes VAT. If VAT is inclusive, the purchase price already accounts for VAT at the standard rate of 15%. Conversely, if VAT is excluded, the buyer will need to pay VAT in addition to the purchase price. Clarity in the agreement regarding VAT treatment is crucial to avoid misunderstandings and potential disputes.

However, what if the agreement is silent on the matter of VAT?

In such instances, Section 64(1) of the Value-Added Tax Act comes into play. This section presumes that any price charged by a vendor for a taxable supply includes VAT, regardless of whether it is explicitly stated in the agreement. Therefore, if the agreement does not address VAT, it is assumed that VAT is included in the purchase price. Courts have upheld this presumption, emphasizing the importance of clear agreement terms regarding VAT.

Given the significant impact of VAT on property transactions, it is advisable to make use of a reputable agency that takes the necessary measures to safeguard your interests and provide the necessary guidance required. Clarity regarding VAT provisions in the agreement can prevent unforeseen consequences and ensure a smooth transaction process.

For more information, contact INTRO REAL ESTATE, it’s the right choice.

VATVALUE ADDED TAXPROPERTYSALE AGREEMENTALIENATION OF LAND ACT

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