21 Richefond Circle, Ridgeside Office Park,
Umhlanga Ridge, Durban l Dx 50, Durban
P O Box 913, Umhlanga Rocks, 4320
Tel: 031 536 8500 l Fax: 031 536 8088
Website: www.coxyeats.co.za
COX YEATS PROPERTY LAW UPDATE
________________________________________________________________________________________
DECEMBER 2012
REGISTRATION AS A VAT VENDOR
Section 23(1)(a) of the Value Added Tax Act of 1991 ("the Act") makes it obligatory for a person who carries
on an enterprise to register as a Vat vendor if the total value of taxable supplies made by that person in a
period of twelve months exceeds R1 million, or in terms of subparagraph (b) if there are reasonable grounds
for believing that the threshold will be exceeded.
Notwithstanding the aforegoing, section 23(3)(d) stipulates that any person who is continuously and regularly
carrying on an activity which activity can reasonably expect to result in taxable supplies in excess of
R50 000,00 being made in a period of twelve months may apply to the Commissioner for registration as a Vat
vendor. A note on the SARS website however states that "a person may choose to register voluntarily
provided the minimum threshold of R50 000,00 has been exceeded in the past twelve month period." In other
words, by directive, SARS first requires taxable supplies of R50 000,00 to be made before registration can be
effected. This is contrary to the provisions of the Act.
The guidance document published by SARS stipulates that it is sufficient in the Vat 101 application form to
furnish the expected total value of taxable supplies for a period of twelve months based upon expected
financial information embodied in a business plan. Estimations in the form of business plans have until
recently been sufficient to achieve registration. Requirements for registration seem to differ from office to
office. Some have stipulated that before registration there must be compliance with section 23(1)(a) of the
Act (the R1 million threshold) which is the obligatory section and not the voluntary registration section.
The new requirement that taxable supplies first must be achieved has severe adverse consequences on new
property investors or developers. A new entrant into the market typically will acquire a shelf company,
purchase immovable property, conclude leases with tenants and then erect buildings on the property.
Provided the company is registered as a Vat vendor before the date of transfer, the company will be entitled
to claim input tax credits for the Vat paid on the acquisition of the property and in the construction of buildings.
SARS is obliged to refund the company for the Vat paid before the company makes taxable supplies such as
rental. Therein lies the rub. SARS is averse to making refunds.
Partners:
Roger Green B.Com. LL.B. • Alastair Hay B.Com. LL.B. • Michael Posemann B.A. LL.B. • Michael Jackson B.Com. LL.B. LL.M. (Cambridge)
Dip. Environ. Law • Peter Feuilherade B.A. (Hons) LL.B. Dip. Insolv Law TEP • Richard Hoal B.Soc.Sc. LL.B. Dip. Maritime Law • Andrew Clark B.Com. LL.B.
Helen Jackson B.A. LL.B. • Robin Westley B.Soc.Sc. LL.B. • Callyn Wilkinson LL.B. • Themba Zikhali LL.B. • Associates: Simon Watson LL.B. LL.M.
Keren Oliver LL.B. • Carol McDonald LL.B. BCL (Oxford) • Vuyo Mkwibiso LL.B. LL.M. • Amy Cornew B.Com LL.B. • Peter Barnard LL.B.
Consultant: Graham Cox B.Com. LL.B.
2
It is acknowledged that in some instances it takes many months for the output tax raised by the vendor on
taxable supplies to match the input taxes the vendor claims on the acquisition and development of the
property. Accordingly the requirements for registration as a Vat vendor have, in past years, become more and
more stringent and have required the submission of copies of all relevant documents including agreements
and leases, a business plan and a personal interview of the director of the company at the local SARS office.
Provided these requirements were met, companies or persons were registered as Vat vendors.
If a person has carried on an activity for three months and the activities project that annualized revenue will
exceed R1 million, SARS will back date registration as a Vat vendor to the date of commencement of the
enterprise. The new Vat vendor can then claim input tax in arrears. In other words SARS will grant this
concession if it is satisfied compulsory registration will be necessary. On the other hand voluntary registration
can be effected in terms of section 18(4) of the Act in order to claim Vat input credits from the date they were
incurred. This retrospective registration creates practical difficulties as the person seeking registration must
incur the cash flow of paying the Vat on the purchase price of the property and funding the Vat on all other
expenses incurred pending the compulsory registration. This is an unsatisfactory solution.
Notwithstanding the new directive, even the threshold of R50 000 makes it impossible for a new business to
qualify as a Vat vendor prior to acquisition of a property. A new venture cannot be "carrying on an activity,
continuously or regularly" if land is to be acquired and buildings still to be erected. The only option for a new
enterprise is to acquire a going concern whose total value of taxable supplies made by that enterprise has
exceeded R50 000,00 during the previous twelve month period. In other words a business may voluntarily
register for Vat in terms of section 23(3)(c) of the Act if it can prove it will acquire an existing qualifying letting
enterprise.
A further danger for small business is that if the taxable supplies fall below the R50 000,00 threshold, SARS
can insist on the deregistration of the business as a Vat vendor. Deregistration requires the payment of Vat at
14% on the value of the assets held by that vendor.
The moral is that registration as a Vat vendor is an asset to be preserved.
ROGER GREEN
For enquiries, refer to The Property Team comprising of Roger Green, E-mail: [email protected], Robin Westley
E-mail: [email protected] and Carol Mcdonald E-mail: [email protected]