On 21 February 2018, former Finance Minister, Malusi Gigaba announced National Treasury’s decision to increase the VAT rate from 14% to 15%, with effect from 1 April 2018. Since then our practice has been inundated with queries regarding the correct treatment of VAT specifically in the context of residential properties being sold. Where an agreement has already been concluded for the sale of a property by a VAT vendor, is VAT required to be levied at 14% or 15%? The question is of specific relevance in the property market given the high values typically associated with such transactions.
Ordinarily, output tax would become due when immovable properties are sold by VAT vendors at the earlier of when any amount as part of that transaction has been paid, or when the transfer of the property has been registered in the Deeds Office. Therefore, ordinarily, when an agreement for sale of a property (by a VAT vendor) has been signed by both parties, output VAT only needs to be charged once any payment is made by the purchaser (which would include payment of a deposit) or when the sale is registered with the Deeds Office.
The concern is therefore that properties for which an agreement has already been signed may be subject to VAT at 15% due to the delayed effect that the above provision gives rise to in determining the time of supply for VAT purposes.
In the case of a change in the VAT rate, the above rule does not apply. Which VAT rate is to apply then is not determined by when the underlying VAT is payable. Rather, section 67A(4) of the VAT Act provides the necessary relief. It determines essentially that where any residential property is sold in terms of an agreement signed and concluded before 1 April 2018, that that transaction will still be subject to VAT at 14%.
The above therefore provides at least some reprieve for residential property purchases concluded prior to the announcement of the VAT increase. However, we have come across various more complex scenarios and would encourage affected parties to contact us to ensure that the VAT treatment of their immovable property transactions is correctly accounted for.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
 Section 9(3)(d) of the VAT Act, 89 of 1991
 (4) … [W]here, before the date on which an increase in the rate of tax leviable … becomes effective, a written agreement is concluded for – the sale of fixed property consisting of any dwelling together with land on which it is erected, or of any real right conferring a right of occupation of a dwelling or of any unit …; or
(b) the sale of fixed property consisting of land, or of any real right conferring a right of occupation of land for the sole or principal purpose of the erection by or for the purchaser of a dwelling … on the land, as confirmed by the purchaser in writing; or
(c) the construction by any vendor carrying on a construction enterprise of any new dwelling, and- the price in respect of the sale or construction in question was determined and stated in the said agreement, as in force before the said date, and that agreement was signed by the parties thereto before the said date; and
(ii) the supply of such fixed property or services under the said agreement is in terms of section 9 deemed to take place on or after the said date,
the rate at which tax is in … leviable in respect of that supply, shall be the rate at which tax would have been levied had the supply taken place on the date on which such agreement was concluded.