Allen West Conveyancing Update

Sometimes a developer or building contractor may sell a piece of land together with an undertaking to erect a building on the land, or to complete a partially completed building thereon.20. In most of these cases, the supplier should be registered as a VAT vendor and VAT must be charged at the standard rate on both the property and the building which is to be supplied. Therefore, is it usually only in the case where there are separate transactions involved in acquiring the land and buildings that transfer duty may be payable on the land acquired. For example, if the vacant land is acquired from one person (non-vendor) and the building work is carried out by another person (vendor), transfer duty will be payable on the land and VAT will be payable on the construction work for the building. 

Developers and builders who attempt to avoid VAT registration or avoid paying VAT on certain transactions will be liable for penalty and interest on the amounts not paid and may face additional taxes of up to 200% of the tax payable, and possibly face prosecution. Examples of this include – 

  • the intentional structuring of transactions in such a manner that it appears that the supply of the land and the supply of the buildings are unconnected or are made by separate (unconnected) persons; or 
  • where documents submitted to SARS are intended to be deliberately misleading, or are omitted for the purposes of obtaining a transfer duty exemption or zero-rating, or in an attempt to pay duty on a lower amount, or to pay transfer duty instead of VAT. 

This is provided that the right is not intended to bind successors in title and is not intended to be registered in the Deeds Registry as an encumbrance over the property. 

There are various ways in which this can be done. For example, the land and the buildings contract may be contained in a single contract or in separate contracts with the same supplier, or there could be separate contracts with the difference suppliers. 

Example 1 – Plot and plan – VAT anti-avoidance provisions


Mrs M is a property developer and trades as a sole proprietor under the name ABC Properties (“ABC”). She is also the sole member of XYZ Construction cc (“XYZ”). ABC sells vacant in residential developments to customers and in terms of that contract, the client is required to conclude a separate contract with XYZ to build the residence on the land sold to them by ABC. ABC is not registered for VAT as its supplies of vacant stands is below the R 1 million threshold for compulsory VAT registration. XYZ is registered for VAT. She deliberately split her activities to avoid having to register ABC for VAT purposes. 


What is the VAT and transfer duty implications of this situation? 


Section 50A of the VAT Act, is an anti-avoidance provision. It provides that where it appears to the Commissioner that the person is attempting to avoid VAT registration by artificially splitting the activities of a single enterprise between various persons, the Commissioner can deem the separate persons to be one and the same for VAT purposes. Since Mrs M appears to be continuously or regularly supplying stands and/or plot and plan projects and has deliberately split her activities, the Commissioner may, in terms of section 50A of the VAT Act, regard Mrs M and YXZ Construction cc as one and the same person.

The consequences of applying this provision is that the Commissioner will aggregate the consideration paid or payable for the land and buildings to determine if the R 1 million threshold for compulsory VAT registration in terms of section 23 of the VAT Act has been exceeded.

In the event that the Commissioner invokes section 50A of the VAT Act, there will be a liability to charge VAT on the full consideration received for the land and any improvements to be effected on that land at the standard rate (14%) in terms of section 7(1)(a) of the VAT Act. Alternatively, if section 50A of the VAT Act does not apply in this situation, the buyer would pay transfer duty on the unimproved land acquired from ABC and VAT on the construction services acquired from XYZ. The VAT and transfer duty treatment of the transaction will, therefore, ultimately depend on the structure of the agreement(s) and whether or not the suppliers are connected persons for VAT purposes. It is also important to note the anti-avoidance provisions contained in section 50A of the VAT 

Should you require any more information on this matter, do not hesitate to contact us. 

Allen West
012 346 1278


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