When you acquire or sell a property, it is important to determine whether Transfer duty or VAT is payable in your transaction. Some taxes will overlap while others are mutually exclusive. There will either be transfer duty payable on the purchase price of the property or VAT, but never both.
The Transfer Duty Act 40 of 1949 provides that transfer duty is payable on the acquisition of a property. In other words, when the property is purchased. This applies to all property transaction except where the Act specifically provides an exemption. One of the exemptions provided for in the Act is where VAT is payable in a transaction.
The question is how will one know whether VAT or transfer duty is payable? The starting point to determine whether VAT or transfer duty is payable is to find out if the seller is registered as a VAT vendor and if the property that is sold is something that forms part of or is used in the seller’s business. If the answer is yes, then VAT will be payable and not transfer duty.
According to the Transfer Duty Act 40 of 1949, transfer duty is payable within six months from date of sale, by the person who has acquired the property. This means 6 months after the date on which the agreement or Offer to Purchase was signed. Transfer duty is not only due on acquisition of ownership in property, but also on the acquisition of other real rights, such as exclusive use areas and servitudes. If transfer duty is paid late, penalties and interest will also be charged.
As of 1 March 2023 there is no transfer duty payable on the acquisition of immovable porperty where the purchase price is below R1 100 000. Transfer duty is calculated on a formula that is reviewed by the Minister of Finance each financial year.
The above is mainly an introduction to when VAT and transfer duty is payable and to give you an idea as to how same is calculated. It remains important to know whether same is payable when a property is acquired.
