Investing in Property Archives

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. In this case, the 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…

By “swallow” I’m referring to people who live in the Northern Hemisphere and travel South every year (typically to a coastal town) to enjoy our summers and avoid the worst of their winters. Now, interestingly, I asked myself the title question while talking to a South African who has lived and worked in Abu Dhabi for 17 years and heads South during the height of their summer to cool off in our winter weather! He and his wife are planning to build a “swallow’s nest” in Mossel Bay. It will not be rented out and will be used only by…

What is ring fencing? Under certain circumstances an assessed loss may only be deducted from future taxable profits earned as a result of the same trade. An example, which is the one I want to deal with here, is when a natural person earns a salary and also rents out property. If the property rental business makes a loss, there is a possibility that the loss cannot be deducted from the salary income for tax purposes but can only be deducted from future rental profits. So, what are those circumstances? See s20A of the Income Tax Act. Ring fencing only…

It is interesting that, although it is the buyer who pays the conveyancing fees, it is the seller who is entitled to choose the conveyancer. Now, let’s say that you are a property investor and you have a good relationship with a particular conveyancer. As an experienced investor you don’t care whether your offer is accepted ot not, because you can always make an offer on another property. Now you are in a strong bargaining position. Simply change the OTP to state that you are entitled to appoint a conveyancer of your choice. There is no way that this little…

A couple who booked a meeting with me were not sleeping at night because they had been doing more than R1m a year turnover from their two multi-unit AirBnB premises and they weren’t VAT registered. What does the law say about this? As soon as you exceed R1m a year VATable turnover, you must register as a VAT vendor. If you don’t, SARS may deem you to have done so and demand the VAT portion of all your invoices, even if you didn’t add VAT. This is what they were panicking about. The legislation is open to various interpretations and…

This question is only relevant when the liability date could fall either into the previous tax year or the new tax year of the seller. Let’s say that the seller’s tax year ends on 28 February. The Offer to Purchase was signed by both parties on 15 January 2023. The supensive clauses were satisfied on 5 February 2023. The transfer was registered at the Deeds Office on 25 March 2023. From a CGT point of view, when were the proceeds of the sale received by or accrued to the seller? (see 3(a) Eighth Schedule, Income Tax Act) My view, as…

Investing in Property

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

Is a swallow’s nest in South Africa a Primary Residence for CGT purposes?

Are rental losses ring fenced?

Can I, as the buyer of fixed property, appoint the Conveyancer?

If I earn over R1m a year from AirBnB, must I register for VAT?

On what date does the seller become liable for CGT on the sale of fixed property.