You sell your property for a good price and, with the deal in the bag, you start daydreaming about how to spend the proceeds.  Then – disaster of disasters – you realise that in the excitement of the sale you forgot all about VAT.

It’s an easy mistake to make, and a recent High Court case (Gerber v Naidoo and Another (3048/2015) [2016] ZAECPEHC 11) shows just how costly it can be.

“Oops, we just lost R221k”

The facts in this case were as follows –

  • The liquidators of a close corporation (which had been placed in liquidation) sold certain immovable property to the buyer for R1,8m.The sale was a vatable transaction – in other words the sellers would need to charge VAT on top of the purchase price and then account to SARS for that VAT.
  • Clearly the sellers intended the sale to be VAT exclusive so that they would receive the full R1.8m net of VAT, and not VAT inclusive – which would mean that they would receive 14% less.  Indeed the bank holding a bond over the property, in giving its consent to the sale (which was listed as a condition of the sale), specified that the offer price must exclude VAT.
  • Unfortunately for the liquidators, the sale agreement itself was silent on this point.  In terms of the Value Added Tax Act [specifically section 64(1)] it holds that where a price is quoted and it is silent on whether the price includes/excludes VAT, then the price charged by a vendor is deemed to include VAT.
  • The buyer, when presented with a pro-forma invoice for VAT on the sale price (i.e. R1.8m plus VAT at R252,000), refused to pay it – and eventually asked the High Court to order the liquidators to pass transfer to him against payment of just the R1,8m.
  • The liquidators asked for “rectification” of the contract to reflect the “true” agreement and the “common intention” of the parties to exclude VAT from the price.  The Court however refused rectification, holding that no such common intention had been proved; and anyway, the liquidators should have formally applied for rectification, and hadn’t done so.
  • The end result – the close corporation in liquidation was ordered to transfer the property to the buyer for the amount of R1.8m, and had to account to SARS for VAT in the amount of R221,053 itself. The liquidators clearly have some explaining to do to the bondholder.

Don’t make the same mistake!

So, if you make the same mistake as the liquidators and don’t specifically provide in the sale agreement that the buyer will pay VAT on top of the purchase price, the buyer only pays the stated price.  No more and no less.

Read more about the sale of immovable property, and whether VAT is levied or Transfer Duty, and at what rate (link here) to ensure that you are never caught out.

As always, when it comes to big contracts, and property sales in particular, sign nothing without legal advice.