VAT Alert
29 January 2014
Special relief period extended to residential
property developers
The special relief period provided to residential property developers for temporary letting
of residential properties has been extended to 1 January 2018
Relief provided to residential
property developers in terms of
section 18B of the Value-Added
Tax Act 89 of 1991 (VAT Act) has
been extended for an additional
three year period to 1 January
2018.
The effect of section 18B
for residential property
developers
Once a property has been
developed, the property developer
may not be in the position of being
able to sell all the units developed
due to economic and market
fluctuations, and may be required
to temporarily let out the units
until later sold. This change in
activity from selling to letting
results in a change of use which
would require the property
developer to account for VAT on a
deemed supply based on the open
market value of the property. This
gives rise to serious negative cash
flow consequences for property
developers.
In January 2012 temporary relief
was given to developers which was
to end on 1 January 2015. In
terms of the section, the property
developer was able to let out the
residential units for a period of 36
months from the date of entering
into the lease agreement, without
being required to account for
output tax. This allowed property
developers to let residential units
for a period of 36 months from the
date of entering into the lease
agreement. Once the special relief
period expired after either 36
months or on 1 January 2015, it
was assumed that legislation
would revert back to section 18 of
the VAT Act which requires a
change in use adjustment.
The Taxation Laws Amendment
Act, 2014, promulgated on 20
January 2015, extends the relief
period by three years to 1 January
2018.
Application of section
18B
To qualify, a rental contract must
be entered into after 1 January
2012, but before 1 January 2018.
The special relief does not apply if
a property developer changes
intention, and decides to retain
the unit to earn rental income for
an indefinite period, and no
longer wishes to dispose of the
unit. In such case, an output tax
adjustment would be required on
the market value of the property
at the time, and any subsequent
supply of that property will not be
a taxable supply and the
transaction will be subject to
transfer duty.
The VAT consequences arising
out of property transactions
should always be carefully
considered.
For further information, please call your PwC contact in your area.
Region
Contact
Telephone
Email
Eastern Cape
Mornay Schafer
(041) 391 4403
[email protected]
Free State, North West, Northern Cape
Hettie Koekemoer
(051) 503 4207
[email protected]
Gauteng
Gerard Soverall
Bennie Botha
(011) 797 5004
(012) 429 0292
[email protected]
[email protected]
Kwazulu Natal
Mornay Schafer
(041) 391 4403
[email protected]
Mpumalanga, Limpopo
Bennie Botha
(012) 429 0292
[email protected]
Western Cape
Charles de Wet
(021) 529 2377
[email protected]
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