BGR (VAT) 57: Whether “consideration” includes transfer duty

Definitions:

“notional input tax deduction” means an amount of input tax calculated under paragraph (b) of the definition of “input tax”, which may be available to a vendor on the acquisition of second-hand goods (including second-hand fixed property) under section 16(3) of the Value Added Tax Act 89 of 1991 (“VAT Act”).

“section” and “paragraph” is a reference to a section or paragraph in the VAT Act (unless specified otherwise).

Background:

When second-hand fixed property is supplied by a person that is not a VAT vendor, transfer duty will usually be payable on that transaction, subject to any exemptions or exceptions that may apply under the Transfer Duty Act. Transfer duty is only applicable if the supply of fixed property is not a taxable supply under the VAT Act.

If the person acquiring the fixed property is a registered VAT vendor and is using that property for taxable purposes in an enterprise, that vendor will, in principle (and subject to certain requirements), be entitled to a notional input tax deduction.

Discussion:

Whilst the term “consideration” suggests a broader scope to encompass any payment, in simple terms, the consideration refers to the purchase price that must be paid to the supplier of goods or services by the recipient.

Reference can be made to Interpretation Note 70 for a more detailed explanation of the term “consideration”.

As provided for in paragraph (b) of the definition of “input tax”, a notional input tax deduction on the acquisition of second-hand goods is calculated by applying the tax fraction (15/115) at the time of acquisition to the lesser of –

• any consideration in money given by the vendor; or

• the open market value of the goods.

Under section 16(3), when calculating the deductible amount of notional input tax, the payment in money is recognised to the extent that it has the effect of reducing or discharging any obligation relating to the purchase price for the supply.

Transfer duty is levied under section 2 of the Transfer Duty Act for the benefit of the National Revenue Fund on the value of any “property” acquired by any person.

Under section 3 of that Transfer Duty Act, transfer duty is a charge levied against the person acquiring the property and is payable to SARS by that person.

As such, transfer duty does not form part of the purchase price of the property. Consequently, the payment of transfer duty cannot be regarded as an amount which reduces or discharges any obligation of the recipient relating to the purchase price of the property.

Ruling:

The term “consideration” as defined in the VAT Act does not include any transfer duty.

Find a copy of BGR (VAT) 57 here.

28/10/2021