Should one deregister the property owning entity for VAT As a registered VAT vendor when you buy a R 2 000 000 property from a VAT vendor you are entitled to claim back the R 280 000 VAT that you paid.
The anomaly is that a R 2 000 000 property will probably only produce a taxable supply i.e. Rent of R 300 000 per annum, substantially under the R 1 000 000 compulsory threshold.
After three years of frustrated dealing with VAT returns and SARs you may want to deregister for VAT, a short answer, DON’T.
On deregistration VAT will be payable on the lower of cost or open market value, in this case you pay back R 280 000. NOTIONAL INPUT TAX CREDIT (NITC) With effect from 10 January 2012 a vendor purchaser is entitled, when acquiring a property from non-VAT vendor, to claim from SARS the transfer duty paid in respect of the purchase price of the property as a notional input tax credit calculated at 14/114. A R 2 000 000 property will attract transfer duty of R 65 000. Notional input tax will be calculated on the purchase consideration or market value e.g. R 2 000 000 x 14/114 = R 245 614,04.
The deduction is claimed in the VAT vendor’s return and documentary proof of payment of the purchase price and transfer duty and a copy of the Agreement of Purchase and Sale must be submitted with the return. The same caveat as above applies, on deregistration SARS will require the NITC to be repaid.
Article written by Wall & Smith Property Consultants And Valuers