03 Jun Buying or selling property? Get your tax matters in order
No one wants to give the tax man their hard-earned money, and the amount of taxes that apply to South African real estate transactions can be rather intimidating. In South Africa, individuals and companies who are not registered for taxes, have outstanding returns or existing tax-related debts may face consequences when buying or selling a property. So, what attention should you be giving to tax-related affairs when it comes to property transactions?
This article outlines the tax considerations you should keep in mind when buying or selling property. For more personalised property advice, please contact Andre Germishuizen.
The Role of the South African Revenue Service (“SARS”) When Buying Or Selling Property
Before issuing a transfer duty receipt or exemption, SARS will conduct a risk analysis of both the buyer and the seller. Please note that SARS’s systems are integrated, and transfer duty receipts will not be issued if you have outstanding tax affairs. All tax-related affairs must be up-to-date, as failure to comply will delay your property transaction.
Value Added Tax (“VAT”)
VAT is only applicable to the purchase price if the seller is a property trading enterprise that is registered for VAT and the property sold is considered a supply according to the VAT Act. Typically, only speculators and developers are responsible for paying VAT.
If you are unsure whether you are liable for VAT, we recommend confirming with your auditors. If the sale involves VAT, it must be stated that the purchase price includes VAT.
Transfer Duty
If you are not registered for VAT, or if the property is not being sold as a VAT supply, the purchaser will be responsible for paying transfer duty. The transferring attorneys will collect the transfer duty and submit it to SARS. SARS will then issue a transfer duty receipt, which the transferring attorney will have to lodge at the Deeds Office.
Capital Gains Tax (“CGT”)
The seller might have to pay CGT if the money from the sale is considered a capital gain. If the selling price of the home is higher than the original purchase price, the seller will probably need to pay capital gains tax on the profit.
The majority of property transactions where the seller does not trade in property are categorised as such. Calculating CGT can be complex because income tax rates, inclusionary rates, and effective rates will differ between entities.
A rebate of R 2,000,000.00 is applicable when a natural person disposes of his or her primary residence. Calculating CGT can be made more complex by costs and expenses, which can be added to the base cost, and others which can be deducted from the proceeds. We recommend that you liaise with your financial advisor to receive full advice on any CGT payable. Kindly be advised that CGT is not paid to SARS by your transferring attorney. The seller will make the payment (if applicable) on his or her tax return.
Income Tax
Should the seller have taken part in a profit-making scheme, they will be required to pay income tax. This implies that a speculator or developer may be accountable for income tax rather than CGT. Any seller who has recently sold other properties should seek advice from their financial advisor to find out if the earnings from those sales would be considered as capital or income, to determine the applicable tax.
When done correctly, taxes should be a hassle-free part of buying or selling property. However, for those who are unaware of the process or are unprepared, there is a real risk of expensive delays and legal problems. If you’re unsure of your tax position, speak with your real estate agent, accountant, or lawyer about your responsibilities, or get in touch with SARS directly.
For professional property advice, contact AWD Law before signing your Offer to Purchase.
Kindly be advised that AWD Law does not enter into litigation on behalf of clients. Our conveyancers specialise exclusively in the development of vacant land, property transfers, bond registrations, administration of deceased estates and notarial practice. Should you require assistance with a litigation, kindly contact The Legal Practice Council.
Contact AWD Law For Professional Property Advice before signing your Offer to Purchase.
All fields marked by an asterisk are required for form submission.