General Interests & News Flashes – Page 15

29 Mar 2018

From the Horse’s Mouth: House Sales and the VAT Increase

“If you hear something (straight) from the horse’s mouth, you hear it from the person who has direct personal knowledge of it” (Cambridge Dictionary)

We all know by now that the VAT rate increases from 14% to 15% on 1 April. How does that affect your residential property sale/purchase?

We are talking big money here – if for example you bought a house from a developer for R10m + VAT, that extra 1% adds R100,000 to your cost. Fortunately a little-known (until now) section of the VAT Act provides some relief to residential property buyers.

This is what SARS has to say about it (slightly simplified) –

Question – “Is there a rate specific rule which is applicable to me if I signed the contract to buy residential property (for example, a dwelling) before the rate of VAT increased, but payment of the purchase price and registration will only take place on or after 1 April 2018?”

Answer – “Yes. You will pay VAT based on the rate that applied before the increase on 1 April 2018 (that is 14% VAT and not 15% VAT).

This rate specific rule applies only if –

You entered into a written agreement to buy the dwelling (that is “residential property”) before 1 April 2018;
Both the payment of the purchase price and the registration of the property in your name will only occur on or after 1 April 2018; and
The VAT-inclusive purchase price was determined and stated as such in the agreement.

For purposes of this rule, “residential property” includes –

An existing dwelling, together with the land on which it is erected or any other real rights associated with that property;
So-called plot-and-plan deals where the land is bought together with a building package for a dwelling to be erected on the land; or
The construction of a new dwelling by any vendor carrying on a construction business.”

But what about commercial property?

Let’s quote SARS again on property generally (once again, slightly simplified) –

Question – “How will the rate increase work generally for fixed property transactions?”

Answer – “The rate of VAT for fixed property transactions will be the rate that applies on the date of registration of transfer of the property in a Deeds Registry, or the date that any payment of the purchase price is made to the seller – whichever event occurs first.

If a “deposit” is paid and held in trust by the transferring attorney, this payment will not trigger the time of supply as it is not regarded as payment of the purchase price at that point in time.

Normally the sale price of a property is paid to the seller in full by the purchaser’s bank (for example, if a bond is granted) or by the purchaser’s transferring attorney. However, if the seller allows the purchaser to pay the purchase price off over a period of time, the output tax and input tax of the parties is calculated by multiplying the tax fraction at the original time of supply by the amount of each subsequent payment, as and when those payments are made. In other words, if the time of supply was triggered before 1 April 2018, your agreed payments to the seller over time will not increase because of the increase in the VAT rate on 1 April 2018.”

29 Mar 2018

5 Hacks to Maximise Office Productivity

Successful entrepreneurs and corporates understand that a happy, healthy workplace environment is a productive one, and that a productive office is a key driver of profitability.

Now picture such a productive office, what springs to mind? What is its colour scheme, how much light is there? Is the temperature comfortable, how are the noise levels, is there a subtle fragrance in the air?

Create your own checklist for creating a really productive office with “5 Office Design Hacks That Will Increase Employee’s Productivity” on the Dumb Little Man website.

14 Mar 2018

Risk Management & Compliance Program for Estate Agency – Meeting your needs to comply with FICA

In terms of the new FICA laws, every estate agency is obliged to have a Risk Management and Compliance Programme as part of their business documentation. This is a document which sets out your internal rules and processes for the implementation of your Customer Due Diligence and reporting procedures.

We have taken it upon ourselves to prepare such a document for you to assist you in complying with this new law, as we feel your time would be better spent selling property! Our document is also considerably shorter than other versions currently circulating.

Here is a link to the document. You are welcome to download it and adapt it to your own needs. Just beware if you delete anything. Each part of the document has been drafted to meet a specific requirement of the Act, and if anything is removed, you may be non-compliant!

12 Mar 2018

NEWSFLASH! DOES SARS TAX DONATIONS MADE FROM A FOREIGN SOURCE?

As you are no doubt aware SARS charges tax on any donation which a person makes to another person if the amount donated exceeds R100 000-00 in any tax year. This donations tax is currently running at 20%.

I recently did some research for a client who was about to receive a substantial donation (a half share in a house worth more than R2 million) from her life partner. He was a foreigner and he had no rights of residence here in South Africa.

What I established was that if a South African resident receives a donation from a foreign source, the whole of the donation is completely tax-free. Neither the donor nor the donee are liable for any tax here in South Africa. This worked out very well for my client.

This also provides an interesting loophole for foreigners who intend to settle here in this country. If they wish to divest themselves of assets for estate duty purposes here in SA, just before they arrive, they can establish a South African company or a South African trust and donate a substantial portion of their estate to the company or the trust. Such a donation will have no tax implications here in South Africa.

Kindly note that this information is true at the time of writing. Our tax laws do however change quite often. If you intend to rely on this advice, kindly protect yourself and obtain confirmation that this exemption has not been abolished.

Deon Welz
March 2018

01 Mar 2018

Can You Still Sell As Is? CPA v The Voetstoots Clause

Both sellers and buyers (of anything – houses, cars, you name it) need to understand how the CPA (Consumer Protection Act) has impacted on the very common “voetstoots” (“as is”) clause.

Firstly, what’s the difference between “patent” and “latent” defects?

Before we get into the meat of this question, let’s understand two important terms –

“Patent defects” are those that can be easily identified on inspecting the goods – like a broken door, damaged tiles, cracked mirror or windscreen and so on.
“Latent defects” on the other hand are hidden or non-obvious. They would not have been visible or discoverable upon inspection by the ordinary purchaser. Think for example of seasonal roof leaks, broken underground drains, leaking geysers and the like.

Exactly what is a voetstoots clause?

A general rule in our law is that when you sell something, you give the buyer an “implied warranty” against defects. That can be disastrous for the seller as it allows the buyer, on finding a defect, to claim a price reduction (or sometimes cancellation of the whole sale).

Hence the very common voetstoots or “as is” clause. In effect as seller you are telling the buyer “you agree to take the goods as they are, the risk of defects is on your shoulders, and I give no guarantees”. Note however that a seller cannot always hide behind such a clause – if he/she is aware of a latent defect and deliberately conceals it with the intention to defraud the buyer, all voetstoots protection falls away.

And then along came the CPA

The Consumer Protection Act has been a game changer when it comes to consumer rights. In a nutshell, as a buyer you are entitled to receive goods that are of good quality, “reasonably suitable” for the purposes for which they are generally intended, defect-free, durable and safe.

If anything you buy fails, or turns out to be defective or unsafe –

You can return the goods to the supplier – without penalty, and at the supplier’s risk and expense – within 6 months of delivery, and
You can require the supplier to give you a full refund, or to replace the goods, or to repair them. The choice is yours; the supplier cannot dictate your options to you.

But does the CPA apply to all sales?

Here’s the rub for buyers – the CPA applies only when the seller is selling “in the ordinary course of business”, so generally “private sales” will fall outside its ambit.
In other words, if you buy a movable like a car from a trader or dealer, the CPA applies and overrides the voetstoots clause. But if you buy from a private seller, the voetstoots clause applies and you have no CPA protection.

What about property sales?

Developers, builders, investors and the like are clearly bound by the CPA. But for private sellers the position is less clear. Although it seems very likely that one-off private sales of residential property don’t fall under the CPA, there is some suggestion that we won’t be 100% sure on that until either our courts rule definitively on it, or the CPA is amended to provide clarity. On the “better safe than sorry” principle, don’t take any chances – cover yourself as below.

Practical advice for sellers

Cover yourself by disclosing any defects you know of to the buyer, and record any such disclosure/s in a written and signed annexure to the deed of sale. A buyer cannot complain if you have informed him/her of the condition of the goods and they have been bought on that basis.

Then if you are selling in the “ordinary course” of your business, be very aware that the CPA applies to you. Understand its very strict requirements (what is said above is of necessity only a brief overview) and the risks of not complying.

If on the other hand you are a “private seller”, make sure you are covered by a properly-drawn “voetstoots” clause. On the off-chance its validity is challenged, you can avoid later disputes with a “belt-and-braces” approach – have the goods checked out by an independent expert (like a home inspection service when selling a house) and have your lawyer incorporate that into the sale agreement.

Practical advice for buyers

Don’t risk having to fight in court over whether or not the CPA applies to your purchase, and over whether or not any voestoots clause is valid. Be warned that depriving a private seller of the protection of a voetstoots clause is never going to be easy, particularly since you will need to prove that the seller intended to defraud you by concealing a defect.

Rather be sure of the condition of the goods before you buy. If the seller hasn’t provided you with an expert report as above, commission one yourself.

01 Mar 2018

IMPLICATION OF CHANGES TO VAT

Further to our Newsflash last week after the budget speech regarding the changes to VAT, we have received several enquiries as to how the change in the VAT rate will actually impact agreements of sale.

The typical questions we have received and the answers thereto are based on information which we have gathered from SARS’ VAT 404 GUIDE FOR VENDORS, which was issued by SARS’ website, on 21 February 2018 (for those who have access to it we refer to questions 8; 14; 15 and 19 referred to in the guide) can be summarized as follows:

If I enter into a sale agreement with a VAT vendor (developer for example or property speculator who is VAT registered) before 1 April 2018 but transfer only takes place after 1 April 2018, is VAT 14% or 15%?
- For NON RESIDENTIAL PROPERTIES – the VAT rate on the earlier transfer of the property or payment of the purchase price to the seller will be applicable. If the contract was thus signed before 1 April 2018, but transfer of the property and payment thereof to the seller occurs after that date, VAT will be charged at 15%. Agents and sellers would be well advised to put in a clause drawing this to the buyer’s attention, or simply now make the purchase price VAT inclusive and provide for 15%.
- FOR RESIDENTIAL PROPERTIES – If the sale agreement is entered into prior to 1 April 2018 it will be 14% regardless of the fact that the transfer only goes through after 1 April. It is instructive to note that the guide refers to when an agreement was “entered into”. This means when the offer was accepted, regardless of any suspensive conditions.
What about agent commission?
- In terms of the VAT guide, if a service is provided prior to 1 April 2018 but the fee is only payable after 1 April 2018, then VAT will remain at 14%. The guide does not distinguish between sale agreements that are subject to suspensive conditions and those that are not. As such we interpret this to mean that the date of sale determines agents’ VAT rate.
- In order to avoid confusion we suggest you make commission (X% inclusive of VAT but then make provision for VAT at 15%. For example 5.75% instead of 5.7% as in the past). Should SARS assess your deal at 14% you can refund the difference to the seller, and if assessed at 15%, you are safe. We are in a transitional phase and no doubt issues are likely to arise when interpreting the question if and when an agent’s service is said to have been supplied and if suspensive conditions are to be met.

01 Mar 2018

Maintenance Defaulters – No Place to Hide

Obtaining a maintenance order for the support of yourself and/or your children is all very well, but what if you are dealing with an “Artful Dodger” who is determined not to pay you?

New provisions in the Maintenance Act just handed you two powerful new weapons –

Tracing defaulters: Serial maintenance dodgers are fond of going to ground to make themselves as hard as possible to trace. They’ll find that a lot harder to do now that maintenance courts can order network service providers (all “Electronic Communications Service Providers” are in the net on this one) to provide the court with all the contact information they have on the defaulter.
Blacklisting defaulters: Living the high life on credit is no longer an option for defaulters, who face blacklisting when courts send their personal particulars to credit bureaus.

These new provisions are in addition to the existing sanctions of criminal prosecution (up to 3 years’ imprisonment), imprisonment for contempt of court, attachment of assets and earnings etc.

01 Mar 2018

Dogs (and Other Animals) Behaving Badly: An Angry Ostrich and a R6.75m claim

Your dog bites the neighbour or a visitor is hurt running away from an angry ostrich on your property – can you be sued?

A recent SCA (Supreme Court of Appeal) decision illustrates.

R6.75m claimed for a snapped Achilles tendon

A visitor was invited to a farm (roamed by a variety of game including ostrich, giraffe and buck) to assist in capturing wildebeest.
When he ran from an ostrich that he thought was chasing him, he fell and snapped his Achilles tendon.
He sued for damages of R6.75m and the High Court held the farm owner liable for whatever losses he could prove.
The SCA overturned this decision, finding that the visitor had, despite his denials, previously teased the ostrich on several occasions and made it angry. On the day in question he had also, found the Court, thrown a stone at the bird whilst it was peaceably minding its own business, and this had provoked the chase.
That provocation, held the Court, provided the farmer with a good defence to the visitor’s claim.

But be careful – you face liability without fault!

The Court in reaching its decision analysed how our modern courts have applied and interpreted several ancient Roman laws dealing with the question of liability for damage/injury caused by animals (domesticated and wild).

Lawyers of an academic bent will doubtless spend many happy hours analysing the SCA’s judgment, but unless you are interested in learning about the theory and ins-and-outs of arcane concepts like actio de pauperie, edictum de feris, qua vulgo iter fit and the like, best confine yourself to understanding these practical issues –

Let’s start with the really risky part for animal owners. You are “strictly liable” (i.e. you are liable without any fault or negligence on your part) for the consequences of your animal’s behaviour. In the case of a domestic animal (like a dog) you have a bit of protection – you are liable only if the animal acted from “inward excitement or vice” and against its natural behaviour. If it’s a wild animal there is no such restriction.
You do also have several defences you can raise, those relevant in this case being that the victim contributed to his/her own loss either through a deliberate action (like provoking a chase or an attack), or through contributory negligence. Take advice in need on the other defences you may be able to shelter behind.
You also risk being sued under the normal principles of liability for negligence.

How to protect yourself

Bottom line – protect yourself by reducing the risks your animals pose to others, and check that your insurance will cover you if you are sued. Disclaimers of liability are also a no-brainer for commercial operations like game farms and reserves, but they need careful wording to afford any hope of protection.

01 Mar 2018

The Art of Smartphone Battery Charging

As our dependency on our always-connected cell phones grows, so does the importance of maximising battery life.

That’s particularly relevant with the death knell now sounded for removable-battery phones. When your battery dies, you can no longer replace it yourself with a low-priced third party one, nor with a spare you carry around for sudden failures. You are in for the cost and delay of paying a technician to do the job for you.

So keep your battery alive and well for as long as possible. Cut through all the grey areas and myths surrounding the topic with “Smartphone charging myths – Are you killing your battery?” on the MyBroadband website

21 Feb 2018

A QUIET BUDGET FOR PROPERTY PRACTITIONERS

In the budget speech that was delivered on Wednesday, 21 February 2018, no major changes that specifically affect property practitioners were mentioned. Transfer duty and Capital Gains Tax will remain the same.

The most important change from our point of view, and from the point of view of all South Africans, was the increase in the VAT rate from 14 to 15%.

This will come into effect on 1 April 2018.

Remember that VAT is charged on agent’s commission, transfer and bond registration fees (and on the sale price of the property where the seller is VAT registered) so the cost of acquiring property will once again become more expensive. Amendments to our costs sheets and our online costs calculator will be made to coincide with the date of the increase in the VAT rate.

We were also advised that the Government is planning to table legislation this year in accordance with the recommendations of the Davis Commission on Tax Reform. Watch this space for commentary of the proposed changes that might affect the property market.

Deon Welz

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