Sars fo­cus on au­dit­ing tax­pay­ers with zero-rat­ing of VAT on fixed prop­erty sales

Weekend Argus (Saturday Edition) - - PROPERTY -

SARS is in­creas­ingly au­dit­ing tax­pay­ers who have zero-rated the sale of a fixed prop­erty in terms of the zero-rat­ing pro­vi­sion, sec­tion 11(1) (e) of the Value Added Tax Act.

“Of par­tic­u­lar con­cern is that Sars is ac­tively seek­ing ar­gu­ments to un­ravel the ap­pli­ca­tion of sec­tion 11(1) (e) of the act, in what ap­pears to be an at­tempt to in­crease col­lec- tions through the mech­a­nism of penal­ties and in­ter­est,” says Dylan But­trick, tax spe­cial­ist at au­dit, tax and ad­vi­sory firm Mazars.

“Sars is not at­tack­ing the for­mal pro­ce­dures re­quired for the ap­pli­ca­tion of the sec­tion but rather the un­der­ly­ing re­quire­ment that there was a sale of a ‘go­ing con­cern’. The f a c t t h a t t h e s o u r c e d o c u ment s pro­vide for a zero-rat­ing of VAT as a sale of a ‘go­ing con­cern’ or that the cor­rect doc­u­men­ta­tion was sub­mit­ted to Sars ap­pears to be ir­rel­e­vant to the tax man.”

Sec­tion 11(1) (e) al­lows for the sale of a fixed prop­erty to be ze­rorated if its in­come-earn­ing ac­tiv­ity is trans­ferred at the time of the sale. If this is done, the trans­ac­tion is re­garded as a sale of a go­ing con­cern. Or­di­nar­ily this is a ques­tion of fact and will de­pend on the par­tic­u­lar cir­cum­stances.

I f a bl o c k o f f l a t s i s s o l d , f o r ex­am­ple, the leas­ing ac­tiv­ity – the ten­ants – must be dis­posed of to­gether with the prop­erty in or­der to con­sti­tute the trans­fer of an in­come earn­ing ac­tiv­ity. A fail­ure to trans­fer this in­come-earn­ing ac­tiv­ity will re­sult in a sim­ple sale of an as­set which would at­tract VAT at the stan­dard rate.

“ S a r s i s n o w i nv e s t i g a t i n g whether tax­pay­ers trans­ferred the in­come-earn­ing ac­tiv­ity at the time of the sale,” says But­trick. “If not, the trans­ac­tion will at­tract VAT in ad­di­tion to penal­ties and in­ter­est from the date of the orig­i­nal sale.

But­trick says the bud­get deficit and pres­sure on Sars to in­crease rev­enue sug­gests it is prob­a­ble that any in­cor­rect ap­pli­ca­tions of sec­tion 11(1) (e) will be dis­cov­ered.

“It’s im­por­tant to com­ply strictly with the pro­ce­dural and the sub­stan­tive re­quire­ments of sec­tion 11(1) (e) when sell­ing a fixed prop- erty as a go­ing con­cern,” he says.

“Fur­ther­more, we rec­om­mend that tax­pay­ers re­view any his­toric sales and en­sure that an in­comeearn­ing ac­tiv­ity was ac­tu­ally trans­ferred at the time of the sale. In our ex­pe­ri­ence if a tax­payer has made a gen­uine er­ror Sars will tend to be l e ni e nt i f f ul l d i s c l o s ure o f a ny in­cor­rect tax treat­ments is made.”

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