Beware of zero rating Vat on the sale of commercial property
I wish I'd known this six weeks ago! It would've saved my brother all the trouble he's going through with SARS right now.
He sold his vacant commercial building for R50 million at the zero rate, and that's when things fell apart.
SARS demanded he pay 14% output tax of R6 million, and slapped him with a 100% understatement penalty, late payment penalty and interest!
And to rub salt into the wound, he has to give the buyer a tax invoice showing the R6 million Vat. The buyer can now claim it as input tax, even though he never paid it!
So, here's what you should also beware of, when it comes to zero rating on commercial property so you don't make the same mistake my brother did.
Zero-rated goods? You need to be prepared for SARS' microscope
You must keep all documentary proof when you buy or sell zero-rated supplies. The Vat Act says you must be able to prove to SARS that you were entitled to do so.
SARS will come with its microscope and interrogate your records. If you don't have the right documents, or you don't have all your documents in order, SARS will see the zero-rated invoice as a standard-rated one.
And demand the 14% Vat from you and will charge you additional penalties and interest!
Don't be left out of pocket! Click here to make sure you're prepared…
Why does SARS keep an eye on commercial property transactions and Vat?
Before I tell you what you should be aware of, let's have a look at why SARS keeps the spotlight on zero-rated Vat and commercial property.
Buying and selling property is a frequent transaction in businesses in South Africa. It's zero-rated mainly because it's so difficult to get a refund out of SARS. But many vendors, including attorneys, get it wrong. As far as SARS auditors are concerned, these are high value transactions on which they can make a killing!
You see my brother's agreement said the sale was of a going concern at the zero rate! But SARS saw from his Vat returns that the building had stood vacant for more than a year. The building wasn't actually a going concern.
So SARS saw his zero-rated invoice as a standard-rated one because Vat was due!
Read on to find out what you must be aware of so you can keep your cash in your pocket!
**********Just what you need**********
60% of Vat vendors get their zero rating wrong!
SARS knows the main problems many Vat vendors have with zero rating. These include:
· Not knowing what goods/services are at the zero rate;
· Not knowing how to levy Vat correctly on zero-rated goods;
· Not understanding the difference between zero-rated goods and exempt supplies;
· Not having the correct documentation to prove the zero rating to SARS; and
· Not knowing the one mistake you can make to lose your zero rating when exporting goods.
Don't be a statistic!
Tackle the problems of zero-rated Vat today with this one tool!
Don't zero rate commercial property unless…
You sell it as a going concern and apply the rules that follow for this!
And if you do say the sale is a going concern, but later it's found that it actually isn't, the zero rate can't apply. As a seller, you'll have to account for the Vat at the standard rate. So I advise you to make a provision in your contract of sale, for Vat to be levied at the rate of 14%, in case your supply doesn't qualify to be zero-rated.
But this is just the tip of the iceberg. For everything you need to know about all 46 zero rated supplies and services, turn to chapter Z01: Zero-Rated Supplies in your Practical Vat Loose Leaf Service. There's about 50 pages of information on zero rating you need to be aware of. Don't have your Loose Leaf yet? Get it here now!
P.S. Our Vat Guru and ex Vat administrator at SARS, Dee Bezuidenhout, has blocked out an entire 2 hours to talk to you about zero-rated supplies at the Vat Masterclass 2015. Don't miss out on this opportunity! Click here to book your seat.