VAT INCREASE AND THE EFFECT ON PROPERTY TRANSFERS AND THE REGISTRATION OF TRANSFERS BEFORE AND AFTER 1 APRIL 2018.

The increase was announced in the Minister of Finance’s Budget Speech on 21 February 2018. The standard rate of VAT will change from 14% to 15% on 1 April 2018 (the effective date). 

How will this VAT increase affect property transactions, property registrations and estate agent commissions?

Question 1: How will the rate increase work generally for fixed property transactions?

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. (See, however, the exception in Question 2 below where registration (delivery) of the fixed property occurs on or before 23 April 2018.)

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. 

Example:

A vendor sells a commercial building and issues a tax invoice to the purchaser on 10 January 2018. If the property will only be registered in the Deeds Registry on or after 1 April 2018 and payment will be made by the purchaser’s bank or transferring attorneys on the same date, then the time of supply will only be triggered at that later date. In this case, VAT must be charged at 15% as the rate increased on 1 April 2018 which would be before the time of supply. It does not matter that an invoice or a tax invoice was issued before the time of supply and before the VAT rate increased. The tax invoice in this case would also have to be corrected as it would have indicated VAT charged at the incorrect rate of 14%.

See also the next questions below for the rate specific rule that provides an exception for the purchase of “residential property” or land on which a dwelling is included as part of the deal.

Question 2: 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?

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 overrides the rules as discussed in Question 1, which applies for non- residential fixed property.

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;
  • a share in a share block company which confers a right to or an interest in the use of a dwelling.

Question 3: How will the VAT increase affect the seller of the property and estate agent commission?

Two possible scenarios can apply:

Scenario 1:

Should the contract of sale read that a percentage commission plus VAT is payable, that will be calculated at 14% if transfer takes place before 1 April 2018 and at 15% when registration takes place on or after 1 April 2018.

The net result is that the seller (who sold prior to 31 March 2018) will receive a lower net amount on the selling price because of the increased VAT, should transfer take place after 31 March 2018.

Scenario 2:

Should the contract of sale refer to a fixed commission amount inclusive of VAT, the opposite will apply. The seller will receive the same amount, but the agent will receive less because of the increased VAT.

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For more information on the VAT Increase, download the SARS VAT Increase general guide and FAQs here.

Please contact us should you have any specific questions.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

 

CAN SOMEONE RECORD ME WITHOUT MY PERMISSION?

Over the past few months, we have seen videos being posted on social media of physical altercations, poor service delivery and racial slurs, but the victims of the videos and audible recordings are usually unaware that they are being recorded. The recordings are conducted without their permission and then shared. But is someone allowed to record you without being granted permission and the share those recordings?

Audio recording

Audio recording includes the recording of conversations conducted over the phone, recording someone speaking to a room full of people, and recording a direct conversation, without the other party’s permission. Recording without consent is against the law, unless

  • You are party to the communication;
  • You have written permission of one of the parties to the conversation;
  • The recording is in connection with the carrying on of business.

Direct video recording

This is the recording of a person with whom you are having a face-to-face conversation. The video taping of someone without their consent is permissible because you are party to the conversation, much like audio recordings. Recording an altercation between you and someone else, or recording an altercation at an airport is legal due to where the conversation is occurring – a public place.

Section 4 of the Regulation of Interception of Communications and Provision of Communication-Related Information Act 70 of 2002 (RICA) defines that a person is party to the conversation if they are in audible presence of the conversation. If you are in an altercation in a vicinity where other people can hear you, they are permitted to film because they are party to the altercation, therefore in direct communication with you.

Indirect video recording

Indirect communication is a much wider category, which includes data, speech and moving images. Skype conversations, although they appear to be face-to-face, are included as indirect communication because it is communication through an online telecommunications service. Thus, you would need to either be one of the parties in the engagement, or have been given consent from one of the parties to record the video/messages.

When is it illegal?

  • If the recording is through an interceptive method such as “bugging” or a “tapping” a device;
  • Hiding to spy on one of the parties for recording purposes, due to the parties being unaware of your presence;
  • When you are in no way party to the conversation. Being party to the conversation is if you are the sender, the recipient, or any person included in the communication.

Exception: RICA permits recordings carried out by law enforcement personnel in certain circumstances.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

  • Kevin Illes, A. (2017). Legal implications of secret recording. [online] Moneyweb. Available at: https://www.moneyweb.co.za/archive/legal-implications-of-secret-recording/ [Accessed 15 Jun. 2017].
  • Writer, S. and Writer, S. (2017). When you can – and can’t – legally record someone in South Africa. [online] Businesstech.co.za. Available at: https://businesstech.co.za/news/general/167107/__trashed-65/ [Accessed 15 Jun. 2017].

TITLE DEEDS WHEN BUYING OR SELLING PROPERTY

If you’re planning to buy a new property, you’ll need to get the title deed transferred into your name to prove that you’re the owner of the property. You’ll need the assistance of a lawyer specialising in property transfers (also known as a conveyancer) to help you transfer the title deed into your name.

You’ll only become the owner of the property when the Registrar of Deeds signs the transfer. After it’s been signed, a copy of the title deed is kept at the Deeds Office closest to you.

How long does it take? 

A search may take 30 to 60 minutes. In some of the larger offices, the copy of a deed is posted or it must be collected after a certain period of time.

To obtain a copy of a deed or document from a deeds registry, you must:

  • Go to any deeds office (deeds registries may not give out information acting on a letter or a telephone call).
  • Go to the information desk, where an official will help you complete a prescribed form and explain the procedure.
  • Request a data typist to do a search on the property, pay the required fee at the cashier’s office and take the receipt back to the official at the information desk.
  • The receipt number will be allocated to your copy of title.

Fortunately, a conveyancer will help you with the process so that you don’t have to worry about all the paperwork yourself. You should contact your legal advisor to find out more.

Reference:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

AM I STILL PROTECTED WITHOUT AN EMPLOYMENT CONTRACT?

This article looks at the continued relevancy of the employment contract in legal practice today. In 2014, the legislator amended section 186(1)(a) of the Labour Relations Act, 66 of 1995 (LRA), which deals with unfair dismissals, by removing the words “contract of” within the definition, leaving only the word “employment”. This gives the idea that the legislator accepts that the employment relationship goes beyond just the employment contract.

On being offered employment, not everyone tends to ask for an employment contract first, yet the employment contract is the first thing everyone turns to when the employment relationship turns sour. It was accepted that the contract of employment is the cornerstone of the employment relationship.  It links the employer and the employee in an employment relationship.

The initial idea was that the contract of employment regulates all aspects of the employment relationship. However, in practice this is not the reality. The employment relationship tends to go beyond just the contract of employment. This is because of statutory intervention, collective contracts, customs, and practices as well as common law implied terms which are often read into the contract. In terms of the section 186(1)(a) of the LRA, the old definition of dismissal was defined as the termination of the employment contract with or without notice. To accommodate the abovementioned factors, the legislator amended the section, expanding the definition of a dismissal to entail more than just the termination of the contract of employment.

This begs the question: do you need to sign an employment contract to be protected by labour legislation in South Africa?

The Labour Relations Amendment Act, 6 of 2014 (LRAA) changed the definition of dismissal in terms of section 186(1)(a) of the LRA. This means that the test for a dismissal will now hinge on whether employment or the employment relationship is terminated. This change from the contract of employment to just employment and/or employment relationship is also noticeable in section 186(1)(e) and (f).

So, what is meant by employment relationship? The contract of employment contains most of the terms and expected duties of both the employer and employee but it seldom happens that it covers the full spectrum of the employment relationship. Some obligations and rights are derived from a variety of sources, including the common law, collective bargaining, statutes, custom and practices, and in some instances, oral contracts between the employer and the employee. Other factors which may be taken into account, such as the employee’s obedience, care, economic dependency between the parties, fidelity, and the employer’s duty of care towards the employee, are not often referred to in the contract of employment. Initially, when employees entered into the contract, these rights and obligations may not have seemed as important but may have later turned out to be the core of a dispute. Therefore, there was a need for the concept to go beyond that of just the contract of employment, as it needed to cover the full scope of the practical realities of the workplace.

The world of work has changed over the years and employers always try to bypass labour legislation, which means that working arrangements may go beyond the employment contract and the protection provided for in labour legislation should also adapt. In Denel (Pty) Ltd v Gerber 2005 9 BLLR 849 (LAC) the court held: “In this regard it is important to bear in mind that a contract between any two persons may represent form and not substance or may not reflect the realities of a relationship…”

In State Information Technology Agency (SITA) (Pty) Ltd v CCMA & others 2008 7 BLLR 611 (LAC) the Labour Appeal Court also used the “reality test” to determine an employment relationship. In WL Ochse Webb & Pretorius (Pty) Ltd v Vermeulen 1997 18 ILJ (SA) 361 (LAC) the court highlighted that neither the employer nor employee benefit from the employment contract when it is “cast in stone”.

The legislator has now shifted the focus to the abstract relationship between the employer and employee, rather than just focusing on the contract between them. This amendment changes the entire idea we had about the employment relationship, even expanding the protection offered by labour legislation.

Reference List:

  • AC Basson, MA Christinason, A Dekker, C Garbers, PAK Le Roux, C Mischke & EML Strydom Essential Labour  Law 5 ed (2009).
  • A van Niekerk, MA Christianson, M McGregor & BPS Van Eck Law@Work 3 ed (2015).
  • A Rycroft & B Jordaan A Guide to South African Labour Law 2 ed (1992).
  • JAM Coyle-Shapiro, LM Shore, MS Taylor & LE Tetrick The Employment Relationship: Examining Psychlogical and Contextual Perspectives (2004).
  • Denel (Pty) Ltd v Gerber 2005 9 BLLR 849 (LAC).
  • State Information Technology Agency (SITA) (Pty) Ltd v CCMA & others 2008 7 BLLR 611 (LAC).
  • WL Ochse Webb & Pretorius (Pty) Ltd v Vermeulen 1997 18 ILJ (SA) 361 (LAC).

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

THE COMPULSORY ROTATION OF AUDITORS

Every public and state-owned company has to appoint an auditor and a company secretary.  However, in terms of section 92 of the Companies Act, 2008, the same individual is not allowed to serve as the auditor or designated auditor of a company for more than 5 consecutive financial years.

What does this mean for my company?

  • If an individual has served as the auditor or designated auditor of your company for 2 or more consecutive financial years, and then ceases the position, the individual may not be appointed again as the auditor or designated auditor of the company until after the expiry of at least two further financial years.
  • If your company has appointed 2 or more persons as joint auditors, you must manage the required rotation in a way that all of the joint auditors do not relinquish office in the same year.

Despite the strict requirements for public and state-owned companies, it is not compulsory for private or personal liability companies to appoint an auditor, unless the company is required to produce audited financial statements.

Is this for the better?

It is understood that the external audit function is an activity of public protection and provides credibility to financial statements and assurance to investors. However, auditor rotation could lead to additional costs to companies, as the new auditor would be required to perform additional procedures on the opening balances of their new client.

In some areas, it could also impact negatively on the availability of auditors, as some towns only have a limited number of registered auditors. Auditors practicing as sole practitioners will also be affected, and could lose long-term clients unless they bring in another registered auditor and expand their practice.

References:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)