Amendments to the VAT Act – Share block companies

This amendment was necessitated by a perceived VAT avoidance arrangement/interpretation.

The background to the amendment is that where share block companies are converted into sectional title ownership or the actual property is sold to the holders of the share block shares, the transaction should be ignored for VAT purposes (it should be a non-event for VAT).

Prior to 1 April 2014 such transactions where deemed to be made other than in the course of a VAT enterprise. This had the unintended consequence that the previous holders of the share bock shares were entitled to a notional input tax credit on the sectional title ownership acquired where the property was used in an enterprise activity.

The amendment to the VAT Act now deems such supplies to be made in the course of a VAT enterprise (irrespective of whether the share block company or the holder of the share block share is registered as vendors). The value of such supplies is however deemed to be nil.

The above has the impact that no actual VAT liability results in the hands of any party, but no party will be entitled to an input tax credit as the value of the supply is deemed to be nil (hence no VAT on the supply).

The following example explains this in more detail: 

The facts 

A share block company issues share block shares to a VAT registered vendor. The share grants the vendor the use of dedicated office space. The share is issued for R1 140 000 (including VAT at 14%).

The share block company subsequently converts the share block share into sectional title ownership. The value of the share is still R1 140 000 (including VAT).

How must the transactions be accounted for from a VAT perspective?


Information courtesy of:  LexisNexis South Africa

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