Budget 2010 – Items of Interest to Estate Agents and the Property Industry

BUDGET 2010-11: ITEMS OF INTEREST TO ESTATE AGENTS

Sources:        Budget Speech 2010

                        Budget Tax Proposals 2010/11

Documents are available on:

http://www.treasury.gov.za/documents/national%20budget/2010/default.aspx

PROPERTY-RELATED PROPOSALS

VAT for property developers to be investigated ... the VAT treatment of residential and commercial accommodation to be reviewed ... an enhanced allowance for property developers to be considered ... electronic payments to become the only way to pay transfer duty

VAT and residential property developers

·        Developers pay VAT on properties which they sell, while rented residential property is exempt from VAT. 

·        VAT input credits are allowed on standard-rated property sales, but not on rentals.  Temporary leasing of residential units requires a full clawback of VAT input credits for leased units. 

·        As the current value of the adjustment is disproportionate to the exempt temporary rental income, options will be investigated to determine an equitable value and rate of clawback for developers.      

VAT on commercial accommodation

·        Residential accommodation is exempt from VAT, while commercial accommodation (e.g. lodging together with domestic goods and services) are subject to VAT. 

·        Evidently the line has become blurred, e.g. some entities are offering student accommodation with furniture and fittings but no services, which could be considered commercial accommodation and therefore subject to VAT. 

·        The VAT treatment of commercial and residential accommodation will be reviewed, and new legislation may be introduced in 2011.

Improvements on leased land

·        Depreciation allowances are available for urban development zones if the underlying land is owned by the party undertaking the improvement. 

·        This creates practical problems if the development is a government/private sector partnership. 

·        Government entities often provide long-term use of land in exchange for private development. 

·        Subject to anti-avoidance mechanisms, an enhanced allowance will be considered for private developers who improve another party's land.

Transfer duty payments

·        SARS proposes to have the law amended so that transfer duty may only be paid electronically, i.e. no longer manually.

GENERAL BUSINESS/TAX-RELATED PROPOSALS

Changes to personal tax ... SITE to be abolished next year ... rules for company car fringe benefits to be tightened up ... a 12-month period of grace for tax defaulters to disclose their defaults and regularise their tax affairs ... fringe benefit relief and payment of subscriptions to professional bodies ... only tax-compliant taxpayers will be able to obtain advance tax rulings in future.

Personal income tax/SITE

·        The annual income threshold for income tax will be raised to R57 000 (from R54 200) for people under 65 years of age, and to R88 538 (from R84 200) for those 65 and older. 

·        The primary rebate will be raised to R10 260 (from R9756).

·        The SITE system is to be abolished in March 2011, i.e. this is the last financial year in which it will operate.

Company car fringe benefits

·        The rules for company car fringe benefits are to be tightened up by increasing the "deemed monthly taxable values", so as to limit the potential abuse of these benefits.

Voluntary disclosure of tax defaults

·        Tax defaulters will be allowed a 12-month period from 1 November 2010 to 31 October 2011, to disclose defaults in their taxes and regularise their tax affairs, while avoiding the future imposition of interest. This includes disclosing unreported bank accounts overseas.

·        Government proposes to do away with SARS' discretion to waive interest on unpaid provisional tax.

Employer payment of professional fees on behalf of employees

·        Employer payment of an employee's subscription to a professional body doesn't give rise to a taxable fringe benefit if membership of the professional body is a condition of employment. 

·        SARS has now discovered that an employer might pay other fees that largely benefit the employer. 

·        The proposal is to extend fringe benefit relief to include these related employer payments.

(Does this apply to fidelity fund certificates (which are a condition of employment) and/or to IEASA membership fees (if IEASA membership is a condition of employment)?)

Advance tax rulings

·        Since 2006, SARS has been issuing advance tax rulings to taxpayers. In future, this will be available only to taxpayers whose tax affairs are in order.

Issued by the

Institute of Estate Agents of SA