The Real Estate industry is in a serious quandary about how the changes in Value Added Tax will affect its selling commission and whether or not it will be short paid Vat on those property sales that were signed before the Vat rate increased; but are registered only after 1 April 2018.
The SARS Electronic Pocket Guide on the VAT Increase gives an overview of the various permutations and at the same time makes it clear that this cannot be construed as legal advice.
We quote from the document as follows.
“The applicable VAT rate depends on the time of supply rules. In simple terms, this is the date upon which the transaction is deemed to occur. The general time of supply rule is the earlier of either:
• when the invoice is issued;
• or when payment is received.”
Accordingly, Estate Agents are best advised to urgently issue their invoices for selling commission, on sales completed before 1 April 2018, addressed to the seller, reflecting VAT at the rate of 14%. The invoices should be dated and issued before 1 April 2018.
Also, in addition, it says “The VAT Act contains specific rules that apply to certain transactions when the VAT rate is increased.”
The Pocket Guide then refers to “services performed before 1 April 2018 and declares that VAT, at the rate of 14%, applies to services actually performed before 1 April 2018”.
An estate agents service has been supplied when it effectively causes a sale, manifested by an offer to purchase that has been accepted by the seller. If the date of sale was before 1 April 2018, then Vat on the commission should remain at 14%, because the service was supplied before, the date the Vat rate increased.
In addition, Section 67A(1)(c)(ii) of the Value Added Tax Act, refers to services performed during a period, beginning before and ending before or after the increase date, and shall be determined at the rate applicable on the day before the said date. Interestingly this section makes no mention of any invoice date, when payment is received or any registration of transfer. If the time of supply has not already been triggered, then this section may well provide that vat remains at 14%.
The performance of an agent’s taxable supply comes to an end once the sale agreement is finally signed by all parties because it pinpoints a historical claim for payment of commission on that date. Therefore, it cannot be said to be a continuing process that warrants any apportionment of different Vat rates.
Should an agent effectively cause a sale to take place before the date on which Vat is increased, then Vat on estate agents commission must remain at 14%, even if the registration of transfer takes place after 1 April 2018.
In conclusion, as a belt-and-braces measure, invoices should be issued and dated before 1 April 2018 in respect of those sales that are completed before the increase date.
For many reasons, this commentary cannot be construed as legal advice.
Denoon Sampson is the Director at Denoon Sampson Ndlovu Inc, currently ranked the ‘number 1’ top performing conveyancer by First National Bank Limited. He has 30 years of experience as a conveyancer, specialising in the full spectrum of property-related law and is often called upon to give talks or contribute content on related matters.