According to the Practical Vat Loose Leaf Service, the five types of fixed property are defined as the following under the Sectional Titles Act and Property Time-Sharing Control Act:
This means if your company either buys or sells the types of fixed property defined above, there certain Vat rules will apply.
For instance, you can claim the full 14/114 tax fraction on the purchase price and not just the Transfer Duty.
But, this is just one of the rules, find out about the rest so you can apply them correctly to put more cash back into your business.
Five Vat rules for buying or selling fixed property
Rule #1: Your claims must relate to a taxable supply
This means you can't just send your fixed property purchase forms to SARS and expect a full Vat refund. The claim is limited to taxable supply.
A taxable supply is any supply of goods or services that tax can be charged on, even if it's zero-rated. So it's any purchase you can claim Vat back from SARS on.
Rule #2: Charge 14% Vat on the sale of property that forms part of your business assets and is used in the course of your enterprise
When fixed property is transferred, you'll either pay Vat or transfer duty, not both.
So if you sell fixed property that's part of your business assets and you used the fixed property in the course of your taxable income, you must charge Vat at the 14% on standard rate on the sale of the property. When you do, the buyer is allowed to claim the Vat back, assuming he's also using the property for taxable supplies!
Rule #3: Claim the input tax on a fixed property purchase
If you buy fixed property that you'll use to produce taxable supplies and you pay Vat on it, you can claim the Vat back as input tax when you pay for the property
As always, you'll need a valid tax invoice to substantiate your input tax claim.
Rule #4: If the seller is a non-vendor, the purchase is treated as the sale of second-hand goods
If you buy fixed property from a non-Vat vendor, it's classified as second-hand goods. And this in terms of the Transfer Duty Act means you'll always pay Transfer Duty on this sale. This means you'll also need the seller to complete a VAT264 form for your records.
If you're going to use the property to make taxable supplies, you can claim a notional input tax deduction on the purchase. Calculate this by applying the tax fraction of 14/114 to the purchase price. You can make this claim either at the time the property is registered, or on the date any payment is made – whichever is earlier.
Rule #5: If you'll use the property for both taxable and exempt supplies, you can't claim all the input tax
You'll only be entitled to claim the input tax portion relating to your taxable activity if you buy fixed property and use it to make both taxable (for example, office rental) and exempt (for example, residential letting) supplies. This rule also applies to your ongoing input tax claims.
Essentially, 'you'll need first need to apportion your input tax when you claim the notional input tax on the purchase of the property, then you'll use the same apportionment percentage going forward,' says the Loose Leaf.
In addition, if you later decide to sell the property, you must charge Vat on the full selling price, even though it was split into both taxable and exempt use. Just remember that you'll only be able to claim the balance of the input tax which you couldn't claim, the portion that related to the exempt supplies.