Greetings | Domestic Property Amnesty | VAT

[think108]

Greetings Forum Members and Dave.

I hooked in after hearing about you on Pete Carruthers' Global Warriors recently. It's a great thing you are doing.

We are fortunate to own a home in Johannesburg, which we put into a company. This was the right thing to do to avoid transfer duties in 1998.

But, as you will know it has become very costly from a tax point-of-view for a company to dispose of a property. For example, I reckon the sale of a property worth R5.5 million would attract some R840,000 of capital gains tax plus R540,000 dividends tax. And I forgot to mention VAT.

So SARS has offered an amnesty where a company sells a property to individuals who can satisfy certain conditions. The amnesty was first announced in 2002 and was recently reintroduced for transactions taking place before December 31, 2012.

In our case, we meet the requirements for relief on Transfer Duty, CGT, STC and Dividends Tax. We own the cc and the cc will sell to us. So it is a no-brainer that we should wish to take advantage of the relief described in a Guide to the Disposal of Residence from a Company or Trust published by SARS.

But here's the catch: our company is VAT registered. Will the transaction attract VAT? Because if it does we are looking at R800,000, and it's a deal-breaker.

Our auditors say “yes”, our Conveyancer says “maybe”. The SARS call centre says “put it in writing and ask for a directive.”

What you say?

I reckon our only hope is that there is a test for a transaction to be VATable: the entity is VAT registered and it is in the ordinary course of business of the VAT registered entity. I'd argue this is not the case here.

There must be many with this question on their minds right now, given the approaching deadline.

[Dave A]

Welcome to TFSA

May I move your post to the tax forum? It's more likely to be read by the folk who could give a well informed comment.

[think108]

Hi Dave.

Yes, please do.

[CLIVE-TRIANGLE]

When the company originally took transfer, did it claim an input credit of the transfer duty? That's probably the big question.

[think108]

When the company originally took transfer, did it claim an input credit of the transfer duty? That's probably the big question.

Yes, I recall we claimed back the transfer duty, which we could only have done if we were VAT registered. It made it possible for us to do the deal. Now I am regretting it because we claimed back R110 k 14 years ago with a present value of say R280k and have paid at least R200 k in VAT, with no end in sight until we get our bond payments down.

[CLIVE-TRIANGLE]

That's the test that is applied, and so it will attract VAT.
As far as I know, the VAT is limited to that originally claimed (but I might be wrong), so it might not be a total train smash.

Your auditors should be able to get a ruling.

[think108]

Domestic Property Amnesty / VAT

That's the test that is applied, and so it will attract VAT.
As far as I know, the VAT is limited to that originally claimed (but I might be wrong), so it might not be a total train smash.

Your auditors should be able to get a ruling.

We got advice from our auditors, and our trust administrators - who in turn consulted some prof at UNISA. Unanimous opinion was R740 k VAT would be payable, being the full amount of 14% of the market value of the property. So that canned the deal.

To add insult to injury, in the process of applying for the substitution of bond holders, the Standard Bank closed our access facility on the existing loan. So from having access to well over to R2 million as a line of credit - we were dropped to zero. Without notice. Bastards. We've been with them my entire working life. So we will gradually close all our accounts and migrate to FNB, I think. I'm sure Standard'll miss us .

Love to know any other stories about the pitfalls of the amnesty in general and the Standard Bank in particular.

[think108]

And thanks, Clive-Triangle for taking the trouble to reply to the post. Much appreciated.

[CLIVE-TRIANGLE]

You're welcome. I truly think your advisers are wrong and that any vat or duty would be limited to the credit originally granted... I feel your pain. It is a pity they did not get a ruling from SARS.

Would you like to hear some horror FNB stories ?

[think108]

[QUOTE=CLIVE-TRIANGLE;80116]You're welcome. I truly think your advisers are wrong and that any vat or duty would be limited to the credit originally granted... I feel your pain. It is a pity they did not get a ruling from SARS.

1.How much would SARS charge me for a ruling? Its not avery complicated thing.

Recall - We own a home in Johannesburg, which we put into a company, which we registered for VAT and claimed back our transfer duties of R110 000. 14 years ago. SARS has offered an amnesty and we meet the requirements for relief on Transfer Duty, CGT, STC and Dividends Tax. We own the cc and the cc will sell to us. But will the transaction attract VAT? And how much? Our auditors say “yes”, R770 000, being 14% on a municipal valuation of R5500000. our Conveyancer says “maybe”. The SARS call centre says “put it in writing and ask for a directive.” And our trust administrators say definitely R770 000.

2. If we got a ruling, would it bind SARS? - assuming it was a favourable one costing us only R110 000 of VAT (to save some R2 200 000 in the event of a sale)

[CLIVE-TRIANGLE]

The whole point of the amnesty is to allow the transfer at the original base cost, because CGT lies at the heart of the deal. I am a bit puzzled at the municipal valuation bit.
Bearing in mind this is a residential property the whole vat story is a bit puzzling too.

There are other consideration also. See SAICA's publication.

[think108]

This info is so appreciated. The SAICA article is very useful.

We have in fact the "trust owns company owns property" situation.

The company is VAT registered, because that was the requirement at the time, as I recall, in order to claim back the original transfer duty.

The SAICA article is quite clear that the transaction value will be the base cost. Which I reckon will be the cap gains valuation we commissioned when CGT came in. And this is in fact not anything like the present municipal valuation, which I and others seem to have been using in error as a base for for our VAT sums.

So my questions are: 1.How much would SARS charge me for a ruling? and
2. If we got a ruling, would it bind SARS?
3. Is there any downside to asking for a ruling - huge audits etc? Not that we have anything to hide - its just so time-consuming.

[Dave A]

1.How much would SARS charge me for a ruling?

If you request a tax directive, there's no charge.

2. If we got a ruling, would it bind SARS?

Yes. Unless they change their mind.

Or to put it another way - it woud be very unusual for SARS to change a tax directive they've issued, but it has been known to happen.

3. Is there any downside to asking for a ruling - huge audits etc? Not that we have anything to hide - its just so time-consuming.

Asking for a tax directive is not in itself an automatic audit flag.

If you don't agree with the directive, you can always appeal. But of course, now we are definitely heading into PITA territory.

[Gael H]

Hi I am facing exactly the same situation as you did. The transfer is on hold as I need to find out if we will have to repay the input tax I claimed (transfer duty) I would like o knw if you proceeded with the application for directive and what was SARS' eventual ruling.