CATEGORIES


[FAQ] The sale of a small holding after VAT registration

Background

A taxpayer bought a small agricultural holding (roughly 4 hectares - so not a feasible "agricultural unit" to farm on). The purpose was to build a house to be used as primary residence. He was not VAT registered during the purchase.
Since the purchase he inherited adjacent land from his father bringing him to roughly 30 hectares. He took over his father’s farming concern and registered for VAT purposes as the supplies from this concern exceeded R1 million.

He now wants to sell the first piece of land and the improvements he made to it.

Is VAT payable on the sale of the small holding?

Answer

The VAT Act

Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services made by a vendor in the course or furtherance of the VAT enterprise carried on by the vendor. VAT is imposed at the standard rate of (currently 15%), unless the supply qualifies to be supplied at the zero-rate in terms of section 11 of the VAT Act or is exempt from VAT in terms of section 12 of the VAT Act.

“Enterprise” is defined in section 1(1) of the VAT Act as any enterprise or activity which is carried on continuously or regularly in or partly in the Republic [of South Africa] and in the course or furtherance of which goods or services are supplied to any other person for a consideration.

Application of the principles

The mere fact that an individual who is registered as a VAT vendor sells goods to another person, does not automatically mean that the sale of the goods is subject to VAT. The issue for consideration is whether the small holding formed part of the VAT enterprise carried on by the owner thereof at the time of the supply/sale thereof.

If the small holding had been used to make taxable supplies after the combined holding constituting a commercially feasible agricultural unit had been acquired, the small holding would have become part of the VAT enterprise carried on by the person and the ultimate sale thereof would be subject to VAT. Under these circumstances the VAT vendor would have been entitled to an actual or notional input tax deduction in relation to the acquisition of the small holding.

If the small holding had never been used for an activity in the course of which taxable supplies were made, the small holding would not form part of the VAT enterprise carried on by the person (i.e. it would be the disposal of a privately owned asset). The sale of the small holding under these circumstances would not be subject to VAT.

Webinar Commentary

Further webinar commentary on VAT: Time and value of supplies can be accessed here.

 

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