Transfer Duty is the tax levied on the value of the property acquired by any person by way of transaction or in any other way. There is the primary residence abatement – meaning that if you purchase a property as your primary residence, the first R2 000 000.00 (TWO MILLION RAND) of the purchase price will not be subject to transfer duty. There are also certain exemptions on paying transfer duty. This article will discuss one of those exemptions, namely Value-Added Tax. 

Section 9(15) of the Value-Added Tax Act 89 of 1991 states that no transfer duty is payable by a person who acquires property under any transaction which is to him a taxable supply of goods in terms of the act, if:

1. The transferor (seller) certifies that VAT has been paid to him by the transferee (purchaser) and that he will account for the amount, or security has been provided as required by the Commissioner where the tax has not been paid; or
2. The supply is zero rated (sold as a going concern, more on that later) and the transferee has furnished the transferor with such information as the Commissioner may require; and the Commissioner has certified that the requirements for the grant of the exemption have been satisfied.

The effect hereof is that most disposals of commercial, industrial, municipal and farming property for a consideration will be free of transfer duty.[1] However, a word of caution: if you are drafting or signing a contract which purports to be a transaction free of transfer duty, it is advisable to ensure that there is a clause that provides for a situation, for whatsoever reason, where transfer duty does become payable.

A zero Rate Tax transaction (going concern) is determined by in Section 11(1)(e) of the Value Added Tax Act 89 of 1991. In order to qualify for zero % tax in the sale of a business, it must be a ‘going concern’.

The following requirements must be met to qualify:

• The seller and purchaser must be registered vendors (a notice of registration stands as prima facie proof)
  • a vendor is someone who has taxable supplies that exceed R1 000 000 in any 12 months;
• The supply must consist of an enterprise which is capable of separate operation.
• Parties must agree in writing that the supply is a going concern.
• The seller and the purchaser must, as a condition of the agreement, agree in writing that the enterprise will be an income-earning activity on that date of transfer thereof. The business will therefore have to be sold as a rental income generating going concern.
• Assets necessary for carrying on enterprise must be disposed of to the purchaser.
• Parties must agree in writing that the consideration for supply includes VAT at zero rate.

In conclusion, transfer duty is not always payable in the sale of property; however, there are strenuous requirements that need to be met. Always consult with your conveyancer and your tax advisor when considering the purchase of property for the purpose of acquiring a taxable supply.