Sellers, landlords and estate agents face many challenges every day when it comes to selling or renting their properties, and have to be “experts”, or at least be well informed in many different fields. One of these fields is VAT, and what the implication will be on the asking price and on the estate agents’ commission.
“The general rule of thumb is that the sellers’ VAT status will determine whether VAT or transfer duty will be applicable on the transaction.
“Sellers, landlords and agents prefer, for obvious reasons, to advertise a property, for example for R5.995 million, excluding VAT, rather than R6 834 300, VAT inclusive,” says Johann Neethling, director of Metro Real Estate - Bloemfontein.
“The danger that they then face is that the purchaser can insist that the price is inclusive of VAT, even if it states that it is exclusive of VAT - and the effect will be that the seller will have to pay the VAT (R736 228.07, in this example) to SARS, calculated on the R5.995 million, and cannot be added to the selling price” .
Section 65 of the Value-Added Tax Act 89 of 1991 states that any price advertised or quoted by a VAT vendor must include VAT, and the vendor must state in the advertisement or quote that the price includes VAT.
“The general rule of thumb is that the sellers’ VAT status will determine whether VAT or transfer duty will be applicable on the transaction.”
Many sellers, landlords and estate agents are not aware of the fact that is it illegal to advertise a property without VAT, or even advertised as exclusive of VAT.
"In its ruling, the Directorate of the Advertising Standards Authority of South Africa (ASA Directorate) referred to its decision in Republic Bus & Truck/W Heckroodt/18961 (2 February 2012), where SARS had clarified that the practice of only reflecting a price excluding VAT on an advertisement does not comply with the requirements of s65 of the VAT Act, and that it is not permissible to quote the price excluding VAT and have a statement that VAT has been excluded."
It is still common practice that sellers, landlords and estate agents advertise VAT-exclusive prices, despite the requirement in section 65(1) that prices must be advertised or quoted including VAT, and that it is a criminal offence, punishable by law, to advertise VAT-exclusive prices.
The same rule will apply to the estate agent’s commission.
“If the estate agent and the seller agreed on a, let’s say 7% commission, it is illegal for the estate agent to add the 14% VAT later on when the commission is calculated as the quoted or agreed commission should be inclusive of VAT. This will be applicable if the estate agent or the agency is registered as a VAT vendor.”