Tax FAQ: Claiming VAT Input on Second-Hand Goods and Fixed Property Transactions
Question from Member
A client purchased a commercial plot from an individual (a non-vendor) and registered the property under their company's name. The property will be used for enterprise purposes. Transfer duty was charged during the registration process. Can the company claim VAT input on the purchase price of the property?
Our Response
When determining whether VAT or transfer duty applies, it is important to note that only one tax is payable, with VAT taking precedence over transfer duty. The determination depends on the seller's VAT registration status:
If the seller is a VAT-registered vendor and the property forms part of their taxable supply, VAT will apply.
If the seller is not VAT-registered, or the property is not part of their taxable supply, transfer duty will apply.
In the scenario described, the property was purchased from a non-vendor. Therefore, the transaction is subject to transfer duty, not VAT. However, the company may still claim notional input tax as the property qualifies as "second-hand goods" under the VAT Act.
Second-Hand Goods and Property
According to the VAT Act, second-hand goods include goods that were previously owned and used, including fixed property, provided the property was purchased from:
A non-vendor.
A vendor who used the property for exempt purposes (e.g., employee housing or private residence).
For second-hand goods classified as "fixed property" and not subject to VAT, notional input tax can be claimed if:
The property is used for enterprise purposes.
The claim is limited to the tax fraction (15/115) of the consideration paid.
The vendor complies with the documentary requirements, including holding a VAT264 form.
Example to Calculate Notional Input Tax
The company purchases a storage unit (fixed property) from a non-vendor for R800,000 and uses it for enterprise purposes. The company pays R500,000 upfront (tax period 1) and the remaining R300,000 in the subsequent tax period (tax period 2).
Notional input tax can only be claimed to the extent of payments made. The calculation is based on the tax fraction (15/115) of the payment amount.
Tax Period 1:
Payment: R500,000
Input VAT: R500,000×15/115=R65,217Tax Period 2:
Payment: R300,000
Input VAT: R300,000×15/115=R39,130
Total Notional Input VAT Claimable:
R65,217+R39,130=R104,347
Key Requirements for Claiming Notional Input Tax
To claim notional input tax on second-hand goods, including fixed property, the vendor must possess a completed VAT264 form that includes:
Seller's name, address, and ID number.
Date of acquisition.
Description of the goods.
Consideration paid for the supply.
Proof of payment (dates and amounts).
Declaration by the seller that the supply is not taxable.
The VAT264 form ensures compliance with the VAT Act and substantiates the notional input tax claim.
In Conclusion
The company may claim notional input tax on the property if it meets the above requirements and to the extent of payments made toward the purchase price. The claim process must comply with the VAT Act's provisions on second-hand goods and enterprise use.
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