If the seller is not registered, Transfer Duty is payable on the purchase price, and not VAT. Transfer Duty is not included in the purchase price. If the buyer is registered, the VAT paid on the transaction to another vendor can be claimed back from SARS (or the amount of the Transfer Duty if purchased from a non-VAT vendor). Most properties transferred from one natural person to another natural person will incur transfer duty.

There are instances where Transfer Duty is paid by the buyer instead of VAT, when buying a property registered in the name of a company or cc, which is a registered VAT vendor.

The only instances where this will occur, is if the company or cc (“the company”) selling the property is not using this property to further the day-to-day business of the company, (Example: The company is in the business of producing a certain consumer good or service, but this said property had nothing to do with producing these goods/services, it was merely owned by the company and rented out to residential tenants).

In this case, if the company sells the property, it will be subject to Transfer Duty being paid on the purchase price. If the company is in the business of providing, for example:

• Guest-house accommodation and the property was a tool in providing this service; or
• The company is in the business of developing residential property;

And the company is a VAT vendor, and then the sale of the property would be subject to VAT being added to the sale price.

Natural Persons

• For properties with a purchase price of up to R 500 000.00, there is NO Transfer Duty levied.
• From R 500 000.01 to R 1 000 000.00, Transfer Duty is calculated at 5% on the value above R 500 000.00 (So, you don’t pay Transfer Duty on the first R 500 000.00.)
• From R 1 000 001.00 upward, Transfer Duty is calculated at 8% on the value above R 1 000 000.00, PLUS a flat rate of R 25 000.00.

Trusts, Companies & Close Corporations

A flat rate of 8% of the purchase price is payable. Companies registered as VAT vendors may claim the Transfer Duty back at the end of its financial year, from the South African Revenue Services.

Transfer duty exemptions.

The Transfer Duty Act was amended with effect from 25 July 2006. Spouse’s who acquired the property from their deceased spouse no longer have to pay transfer duty to have the property registered in their name.

In the event of a divorce the spouse awarded the property will no longer have to pay transfer duty to have the property registered in their name. To qualify for the exception the sole ownership in the property of the deceased or divorced spouse must be acquired.

There are two different types of taxes (government charges) in South Africa:

• Direct Taxes: Personal Income Tax, Capital Gains Tax, Company Tax and so on;
• Indirect Taxes: Value Added Tax, Customs Duty and Excise Duty.

On 1 July 1978 South Africa saw the introduction of General Sales Tax (GST). On 30 September 1991 GST was replaced with Value Added Tax (VAT). Like it’s predecessor, VAT is an important and effective source of revenue for the South African government. In 1995 VAT was levied on most goods and services at a standard rate of 14%.

Who has to Register for VAT?

Every natural person, trust, company, close corporation or partnership who produces goods or services, and expects to (or does) generate a turnover of R 300 000.00 or more, needs to register with SARS as a VAT vendor.

You may not register if your turnover is less than R 20 000.00, although you may voluntarily register if your turnover is between R 20 000.00 and R 300 000.00, but you must still then comply with all the provisions of the VAT Act 89 of 1991 (as amended). Therefore, if you purchase property from a developer, you will be paying VAT as the vendor will be registered for VAT.

1. What is Capital Gains Tax?

Capital Gains Tax is the tax that you pay on any profits you make on your assets when you sell or dispose of your assets in any way. You will therefore not pay Capital Gains Tax on the full amount of the sale, but only on the profits. Profits accumulated before the date when capital gains came into effect are excluded.

2. Why is Capital Gains Tax being introduced?

The absence of Capital Gains Tax (CGT) creates many distortions in the economy, by encouraging taxpayers to convert otherwise taxable income into tax-free capital gains. SARS has noticed that clever taxpayers have made use of these conversion transactions, which has eroded the corporate and individual income tax basis, reducing the efficiency and equity of the overall tax system. CGT therefore protects the integrity of the personal and corporate income tax basis and can materially assist in improving tax morality.

3. When does Capital Gains Tax come into effect?

CGT came into effect on Monday 1 October 2001. Only gains made after this date will be taxed, therefore it is important to know the value of an asset on this date.

4. Who is liable to pay Capital Gains Tax?

Resident individuals, companies, close corporations and trusts will be subject to capital gains tax on the disposal of any local or worldwide assets. Emigration is deemed to give rise to a disposal of assets. For resident individuals, certain private use assets are exempt from Capital Gains Tax (e.g. motor car, clothing, etc.).

CGT also applies to non-residents in respect of local immoveable property (or interests therein) or assets of a local permanent business establishment (e.g. a branch office).

5. What are affected capital assets?

Affected capital assets are any kind of property, be it movable or immovable, tangible or intangible, for example land, mineral rights, office blocks, plant and machinery, motor vehicles, boats, caravans, trademarks, shares, etc. Affected capital assets exclude trading stock and mining assets that qualify for an income tax deduction as capital expenditure.

6. What is the base cost of an affected capital asset?

The base cost of an asset it basically what you spend on attaining the asset as well as any other expenditure directly related to this or the disposal of the asset. It also includes any costs you encounter on improving the asset, provided that you haven’t claimed these costs against your income tax and that these improvements are still there when you dispose of the asset.

Base costs of an affected capital asset therefore may include:

• The original cost of actually acquiring the asset.
• Any incidental costs related to the acquisition or disposal.
• Any costs incurred through maintaining title or rights to the asset.
• The cost of improving on the asset.
• VAT paid and not claimed or refunded.

Note: Current costs such as interest, repairs, insurance, rates and taxes may not form part of the base cost – these costs would normally be on revenue account, rather than being capitalised.

7. What is the inclusion rate?

Individual only need to pay CGT on 25% of the net gain, while companies, close corporations and trusts need to pay on 50%

8. What assets are exempt from CGT?

• Your primary residence (i.e. the home that an individual/spouse or special trust owns and usually lives in) unless you make a gain or loss on it of more than R1 million
• All private motor vehicles used for personal use, not business purposes
• Personal belongings and effects, such as jewellery and collectibles, but excludes boats, caravans, aircraft, share certificates and gold or silver coins (such as Kruger Rands)
• Any proceeds from a life insurance or endowment policy (except for a second-hand policy)
• Any compensation you receive for personal injury, illness or defamation actions
• Prizes or winnings you receive from lotteries, betting or competitions, provided you are not a professional gambler
• Foreign exchange gain or loss on currency you exchange back into Rands having used it for your personal use for a trip overseas
• Small-business assets that you dispose of, where the proceeds will be used for your retirement, provided that you are over the age of 55 or you retire due to ill health
• Any institution fully exempt from normal taxation, such as government departments, local authorities and approved public benefit organisations

9. When is Capital Gains Tax triggered?

CGT is triggered when a disposal has taken place – i.e. when there is a change of ownership when the asset is either:

Under the new act some property owners may be required to pay higher rates while others may receive a discount in their rates. Owners of sectional title units will now be charged individually on their units and will have to pay rates direct to local municipalities. In the past a unit of the sectional title’s rates where included in the levy.

The rates charge will be based on the market related value of your property. The market value is determined by comparing the selling price of similar properties in the same neighbourhood.

The Act provides for the revaluation of all properties and a property should be re-valued every four years.

What are your rights as the property owner?

Firstly you can challenge the value given to your property if you believe it to be unfair. You can hand your objection to the municipal valuer concerned. If he accepts, the adjustment will be made with 10% up or down of the assessment. If it is more it will be referred to an appeal board for review.

Tax Implications of Speculating and Developing.

In the normal course of events, the sale of a second and subsequent property will attract capital gains tax. However, a clear distinction must be drawn between revenue and capital. If you decide to speculate or to become a developer, this will alter your tax status/liability.

As soon as SARS is of the opinion that you have entered into a discernable business or trade of buying and selling property, you will be liable to pay revenue income tax as opposed to capital gains tax.

It is important that you understand this distinction, as your normal rate of income tax will generally be much higher than the rate of capital gains tax.

If a property were acquired with the intention of making a profit at a later date, then the proceeds on the sale thereof would be revenue. If the property were acquired with the long-term prospect of providing accommodation or as a financial investment it would be counted as capital.

You are strongly advised to seek professional assistance in this regard to ensure that you structure your affairs in the most tax efficient manner possible.