The purchase price (or in some cases the value) of a property determines the tariff at which the costs incidental to the transfer thereof are calculated. Although it is customary for a purchaser to pay the transfer costs, nothing prevents the parties from stipulating in the deed of sale that the seller will be responsible for payment of the transfer costs.
However, the banks are normally not prepared to finance transfer costs and if the purpose of such a stipulation is to obtain a mortgage bond that will include the transfer costs, chances are excellent that it will not succeed as, without exception, the various banks’ attorneys require of the transferring attorneys to certify, inter alia, that no costs are included in the purchase price.
Transfer costs are payable at the time of signature of the transfer documents as the very next two steps in the transfer process are, respectively, payment of the required rates and taxes to the local authority, with a view to obtaining a rates clearance certificate (or levies to the body corporate for the issue of a levy clearance certificate) and payment of the relevant transfer duty to SARS, in respect of which a transfer duty receipt is issued. Without the rates clearance certificate and the transfer duty receipt it is not possible to proceed with the registration process.
The transferring attorney will present the purchaser with a detailed statement of account (referred to as a ‘pro forma’ statement) which will normally comprise the following:
- Deeds Office search fee – This can vary between R250 and R750.
- Electronic document generating charges – These will be the various actual charges of the electronic service provider (e.g. GhostConvey) and they normally vary in total between R500 and R1 000.
- Transfer duty payable to SARS (as obtained from the official SARS website) – refer to the table below:
1 March 2020 – 28 February 2021
|Value of the property (R)||Rate|
|1 – 1 000 000||0%|
|1 000 001 – 1 375 000||3% of the value above R1 000 000|
|1 375 001 – 1 925 000||R11 250 + 6% of the value above R 1 375 000|
|1 925 001 – 2 475 000||R44 250 + 8% of the value above R 1 925 000|
|2 475 001 – 11 000 000||R88 250 +11% of the value above R2 475 000|
|11 000 001 and above||R1 026 000 + 13% of the value exceeding R11 000 000|
- Pro rata rates and taxes (levies) payable to local authority (body corporate) – The extent of this depends entirely on the actual rates and taxes as determined by a local authority (or levies as determined by a body corporate) payable in respect of a particular property.
- Cost of rates clearance and valuation certificates (levy clearance certificate) – Currently the Overstrand Municipality charges R172 for this. Levy certificates of bodies corporate can vary between R550 and R 1 550.
- Deeds Office registration charge – This is calculated according to a sliding scale with a minimum of R39 and a maximum of R5 435 (if the purchase price is in excess of R30 million).
- Transfer fee – These fees are based on the purchase price, for example:
R11 160 if the purchase price is R500 000;
R31 180 if the purchase price is R2 500 000;
R49 660 if the purchase price is R5 000 000;
R59 258 if the purchase price is R7 500 000;
R68 910 if the purchase price is R10 000 000.
- Fee for investment of trust funds – This can vary between R500 and R700.
- Postages and petties – This can vary between R500 and R1 500.
- VAT on fees (only applicable to the Deeds Office search fee, the transfer fee, investment fee for trust funds, postages and petties) – Value added tax on fees is calculated at the current rate of 15%.
It is often found that people loosely use the term ‘transfer costs’ when they actually mean the relevant transfer duty payable to SARS. As can be seen from the above, the term ‘transfer costs’ include all costs of transfer, inclusive of transfer duty.
Transfer duty or VAT?
Whenever immovable property is transferred from A to B (irrespective of whether the parties are individuals and/or legal entities), the transaction is normally subject to payment of tax to SARS, either in the form of transfer duty (hereinafter referred to as TD) or value added tax (commonly referred to as VAT).
So when will TD be payable and in which instances is VAT payable? Who is responsible for the payment of TD or VAT, and when? And lastly, is it possible to structure a sale transaction in such a way that neither TD nor VAT will be payable?
- Normally, and in the majority of cases, TD will be payable.
- The mere fact that a seller of fixed property is registered as a VAT vendor in terms of section 23 of Act 89 of 1991 (the VAT Act) does not necessarily mean that the sale of his/her/its property is subject to payment of VAT. Only if in the past the seller has claimed ‘input VAT’ in connection with the property, will ‘output VAT’ be payable on the sale thereof. In such an event no TD will be payable. This is in line with the principle that a single taxable transaction can only be taxed once.
- It thus follows that if the seller (who is a registered VAT vendor) has never claimed VAT in respect of a property, he/she/it may choose to either treat the sale thereof as a VAT transaction or a TD transaction.
- Our law does not prescribe who is responsible for payment of TD. The only concern of SARS is that the relevant TD is paid within 6 months from date of last signature of the deed of sale (normally the date of acceptance of the Offer to Purchase). However, the practice has developed that the purchaser of fixed property normally pays the relevant TD as part of the transfer costs. Therefore, nothing prevents the parties from stipulating in the deed of sale that the seller will be responsible for payment of TD. It very seldom happens, though.
- As far as VAT is concerned, the VAT Act stipulates that the seller is responsible for payment thereof. In practice, the seller will merely add the relevant VAT to the price that is required for the property. Consequently, the purchaser normally ends up ‘paying’ the VAT as part of the purchase price but in lieu thereof he/she/it does not have to pay any TD.
- It is possible to structure a sale transaction in such a way that neither TD nor VAT will be payable, provided that:
- the seller of fixed property is registered as a VAT vendor in terms of section 23 of the VAT Act; and
- the purchaser is similarly registered as a VAT vendor, or will at least be registered as such prior to the date of ‘supply’ (transfer); and
- the fixed property forms part of an enterprise that is being disposed of as a going and income-earning concern, together with the assets that are necessary for carrying on the business;
tt the transaction will then attract VAT at a zero rate. Consequently, and whereas a single taxable transaction can only be taxed once, neither VAT nor TD will be payable.
This is normally the case with guesthouses and commercial properties. However, if a private property is exclusively being let as holiday accommodation, or in terms of a long-term agreement of lease, it is also deemed by SARS as an enterprise that is capable of being disposed of as a going concern.
Needless to say, the wording of the deed of sale will be of utmost importance and will have to clearly reflect the parties’ intention of qualifying the transaction as a zero-rated one.
(This article is merely a general information sheet and should not be used or relied on as legal or other professional advice. No liability is accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information contained herein. Always contact your legal advisor for specific detailed advice or contact us for further assistance.)