Investing in Property Archives

The first question is, of course, what do you mean by “wealthy”? I like my definition of being “reasonably wealthy” as “having enough passive income to be able to retire”. For us average people, there is, in my view, only one way to achieve this other than by gambling successfully and that is by investing in property. Why property? Because you can buy a R900 000 property with R90 000. You can’t buy R900 000 worth of listed shares except with R900 000. You will need about R12m to 14m invested in rental earning property…

You’ve lent money to your trust’s company, perhaps for a deposit on a property purchase or perhaps from selling your property to the trust when it didn’t have the money to pay you. Either way s7C of the Income Tax Act kicks in. In simple terms, it says that you must charge interest at least at the official rate (which is the repo rate plus 1%). If you don’t, then the shortfall that you didn’t charge is deemed to be a donation and that is subject to Donations Tax at 20%. Now it gets interesting.

This is one of the most frequently asked questions during my many Teams meetings. So, here’s the answer. I’ll talk as if you only have one property to deal with. You have to choose between donating the property or selling it. There’s no other way. If you donate it, you’re in for 20% Donations Tax. The only advantage is that you will have moved its value out of your estate and away from your creditors. You can’t do this to escape creditors whom you know are already proceeding against you. Your alternative is to sell…

Yes, you can, but for all tax purposes, it will be deemed to have been sold at market value. So, why mess with the price? You will probably be selling to a company owned by the trust. If the company does not have the money to pay for the property then it will owe you the money and s7C of the Income Tax Act says that you must charge interest at least at the official rate. That interest is taxable in your hands. So, the lower the actual selling price, the lower the Conveyancer’s fees and…

I’ve been worrying this bone since 2018. I have published all the right answers both in my articles and in my books, but I focused more on the rental of the accommodation rather than on the rental of the building. So here goes. We assume that your turnover exceeds R1m. If you rent a residential accommodation building directly to a tenant or tenants without services, you are renting residential accommodation and it is exempt from VAT. Example1. Your own a house and rent it out on a 1-year lease. Example 2. You own a student accommodation…

This client was planning to buy a block of flats and rent them out as Air BnB. The seller was not VAT registered. The rule as I have always interpreted it, is that if the purchaser is VAT registered and the seller is not, then if it is a commercial property, the purchaser pays Transfer Duty but claims Input VAT of 15/115 x the purchase price. If it is a residential property, then the purchaser pays the Transfer Duty, but cannot claim the Input VAT. The question arises as to what defines a commercial property.

Phew! This has been a long road. I am again deeply indebted to the Tax Faculty and specifically to Theloniuos Burrows for his assistance in clarifying this really tricky problem. The question that I am often asked, in one form or another, is “What is the VAT treatment of a Guest house/AirBnB/Student accommodation/House rental?” Guest House The easiest one to deal with is a Guest house because it is specifically mentioned in the definition of “commercial accomodation” in s1 of the VAT Act. Commercial accomodation is subject to VAT and so, therefore, are guest houses. There’s a special provision in…

I am deeply endebted to Theo Burrows of the Tax Faculty Team for finally settling this issue. He has confirmed the tentative view that I expressed in this article. That is, that if the business of letting Air BnB accommodation does more than R1m turnover, then it must register as a vendor and charge VAT. The bottom line is that AirBnB is commercial accommodation (subject to VAT) and is not the letting of a dwelling (not subject to VAT). His references from the VAT Act are: s1 Definition of Commercial accommodation s12(c) Commercial accommodation is subject to VAT. Residential…

This is a follow on to my article of two weeks ago “How do I buy property cheaply? The seller’s attorney had originally drafted the Sale Agreement and I was engaged by my client to modify it to ensure compliance with SARS’ requirements for zero rating of the sale of a going concern. The seller’s attorney, who clearly didn’t understand the VAT Act, kept putting obstacles in the path until my clients got fed up to the point where they were going to tell the seller that they were walking away from the purchase. I suggested that rather than walk…

A client wanted to buy a farm for R2,7m. She told me that it was a good price because the seller had dropped the asking price from R3,2m. As it was to be a business bought as a going concern, the deal would be zero rated for VAT provided it and the Offer to Purchase (OTP) complied with SARS’ requirements. She engaged me to redraft the OTP to comply. When she submitted it to the seller, his attorney, whose draft OTP I had been engaged to edit, told him he shouldn’t sign it because the purchaser (a new company) was…

I’ve never been keen on the idea of transfering only the bare dominium of a property to a trust structure. Sure, you may save a bucketload of Transfer Duty and CGT but, if you do the numbers, taking into account the time value of money, the total tax paid up to the death of the usufructory is about the same either way (SARS isn’t stupid). And, in the meantime, the trust owns a property that it cannot let out or sell, and it is responsible for the rates and upkeep. So what was the point of the transfer? It runs…

Property transactions will either attract VAT or Transfer Duty but never both. Which you will pay depends on a few factors. Is the seller VAT registered? If Yes, then look at the top 4 possibities If No, look at the bottom 3. Is the property a residential dwelling or a commercial property That thins it down Is the buyer VAT registered? And that should get you the answer. What is not in the diagram is the purchase of a business as an income earning going concern. That’s charged VAT at Zero Rate.

Here’s a quick guide – If you really want to get your head around it, why not book your first of many free Zoom meetings with Derek, our CEO?…

Let’s say that a person owns a rental property and also a company. Can the company charge the rental as if it were the owner and be taxed on the net rental income rather than the owner being taxed? The answer lies in one of the anti-avoidance sections in the Income Tax Act. s7(7) is a difficult read because of the clutter, so I have simply deleted the words which are not relevant to this example, but have not changed any of the words. S7(7) If by reason of any donation, settlement or other disposition made by any person (hereinafter referred…

Simple answer – If you can find somebody stupid enough to buy the company, sell them your shares. Here’s why: If you sell your shares, then you will make a capital gain probably about equal to the increase in value of the property. You will pay a maximum of 18%. And that’s it! Why is the buyer stupid? Because he/she doesn’t know what skeletons may be in the cupboard. For example, the company could have signed surety on another debt. Now let’s look at the other option. The company sells the property. It makes a capital gain and pays CGT…

It is often suggested that, in order to avoid CGT and/or Transfer Duty, it is advisable to sell only the Bare Dominium (that is, the physical property) of a fixed property into a trust structure, retaining the usufruct (right of use) in the hands of the original owner. If the owner is relatively young, the usufruct has a high value and the bare dominium has a low value, hence the apparent avoidance of tax. What are the problems with this scheme? The tax in the long run, bearing in mind the time value of money, works out about the same,…

I had a meeting with a guy who had this great scheme to save tax. He’s an investor in residential property and was going to register various properties in his own name, his wife’s name and his childrens’ names so that each of them was in a business doing less than R1m turnover. Then he was going to register each of the businesses as a micro enterprise and pay turnover tax. Tax on R999 999 turnover = R14 120 Brilliant! It doesn’t work because of the anti-avoidance rule in the 6th Schedule of the Income Tax Act. This says that…

Let’s say that your VAT registered company bought an office block as an income earning going concern from a VAT vendor. The deal complied with s11(1)(e) of the Value Added Tax Act and was zero rated. Your company then converted the offices into residential units. What are the VAT implications of this? My understanding is that when the conversion has been completed and the residential units become available for letting, the original unpaid Input VAT should be added to the Output VAT and paid over to SARS. If only part of the commercial property, say, 60%, being less than 95%,…

We have just made our 7th move in the 7 years since we sold our house and became nomads. What are the advantages of renting rather than buying your home? Buying Home owning is expensive. You pay Transfer Duty, conveyancer’s fees, rates, levies, insurance, interest, repairs, maintenance. You buy with your heart and not your head, so you probably do not get the best deal, which makes the bond repayments higher than they should be. You are stuck there and can’t just up and move away when things go wrong or you feel like a change. You end up doing…

So, your VAT registered company is planning to buy a mixed use (commercial and residential) property from another VAT registered company. This would typically be shops on the ground floor and flats on the first floor. How does the zero rating for a going concern work in this case? I had a lot of trouble answering this one, but eventually found an excellent opinion by the Tax Faculty, of which I am a member. The article was written by Cliffe Dekker Hofmeyr. s11(1)(e)(ii) Value Added Tax Act … where the enterprise or part, as the case may be, disposed of…

Investing in Property

How can I become wealthy?

Interest on loans to a trust

How do I move my properties into a trust?

Can I sell a property to my trust below market price?

Is the rental of a residential accomodation building subject to VAT?

Can I claim Input VAT on the purchase of a property that is zoned Residential?

VAT on AirBnB, Student accommodation and Guest houses

Must an AirBnB register for VAT?

What must I look for in a Contract?

How do I buy property cheaply?

What happens to a usufruct on the death of the usufructory?

Will I pay VAT or Transfer Duty?

Should I buy property in my name, a company or a trust?

Can my company earn the rental from property that I own?

Should I sell the company or should my company sell the property?

Usufruct and Bare Dominium

Why Turnover Tax won’t work for you.

What happens to VAT if you buy a commercial property as a going concern and then convert it into residential units?

Should I own or rent my home?

VAT and Transfer Duty on mixed use going concern properties