Abstract:
Residential property developers sometimes struggle to dispose of newly built residential premises, because of an oversupply of residential property in the market and decreased sales in recent years. Many developers have switched from speculation (when residential properties are built to be sold) to investment (when properties are retained to generate rental income). Some developers only lease out newly constructed dwellings temporarily in anticipation of selling them later at a more favourable price. Units may be held with the ultimate goal of selling them, creating taxable supplies. In South Africa, these changes in the use of residential property have value-added tax (VAT) consequences that result in a negative cash flow. In the 2010 Budget Speech, amendments to the harsh VAT legislation were proposed. This study examined the South African VAT legislation applicable to property developers during the period when residential properties are let out. The findings suggest that the current South African VAT legislation relevant to changes in the use of residential properties is harsher than that in New Zealand or Australia, but that the proposed amendments offer some degree of relief. However, even with these amendments, there is insufficient relief, and another possible solution is proposed
