A taxpayer bought more than 5 residential units from a developer. They were new and unused. The units are located in RSA and were used in the taxpayers trade. The taxpayer is not registered for vat. The taxpayer wants to claim 5% on the cost of the units
Important:
This answer is based on tax law for the tax year ending 28 February 2019.
Answer:
The fact that the taxpayer is not registered as a vendor is irrelevant – the supply may well have been an exempt one and no enterprise may be carried on. But that is irrelevant for purposes of section 13sex.
Your request relates, correctly so, to the fact that the allowance is not available in respect of the cost of the land. For ease of reference we quote the relevant part of the section here:
Section 13sex(8)
For the purposes of this section, to the extent that the taxpayer acquires a residential unit (or improvement to a residential unit) representing only a part of a building without erecting or constructing that unit or improvement-
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55 per cent of the acquisition price, in the case of the unit being acquired; and
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30 per cent of the acquisition price, in the case of the improvement being acquired, is deemed to be the cost incurred by that taxpayer in respect of that unit or improvement, as the case may be.
We submit that the words relevant to your request are “to the extent that the taxpayer acquires a residential unit … representing only a part of a building”. In particular the representing only a part of a building part.
In this respect SARS states the following in their guide:
The reference to “a residential unit forming part of a building” would apply, for example, to a flat forming part of a block of flats. The intention in limiting the qualifying cost in such instances is to prevent the allowance being allowed on the cost of the land on which the building is situated and which would form part of the cost of the flat.
In the practice generally prevailing, albeit in respect of section 13quin, the following is stated:
“The reference to “a part of a building” includes, for example, the acquisition of a sectional title unit from a developer that relates to part of a building.” In the footnote to this they state that “depending on the facts, a unit in a sectional title scheme can relate to part of a building or a whole building.”
It then also states that the “purpose of the limitation on cost to 55% of the acquisition price of such a unit is to ensure that the allowance is not calculated on the cost of the land, which would be included in the acquisition price of the unit.”
You need to determine if the units represent only a part of a building.