▶ Tax Guide · Africa Estate Agricultural

Deemed Input VAT on Farm Purchases

How VAT works on a South African farm purchase, in plain language.

VAT on a South African farm purchase falls into one of three outcomes: zero-rated going-concern under Section 11(1)(e), deemed input tax on a second-hand-goods purchase under Section 20(8), or standard-rated VAT at 15%. Which outcome applies depends on the VAT status of both parties, the structure of the supply, and the way the agreement is drafted. Getting the treatment wrong costs up to 15% of the purchase price; getting it right is one of the most significant single financial decisions in any commercial farm transaction. This guide explains the three outcomes, the conditions for each, the documentation SARS expects, and the eight-step process to structure a farm purchase for the cleanest VAT outcome.

▣ Key Facts at a Glance

  • VAT on farm purchases in South Africa falls into one of three outcomes: zero-rated going-concern sale under Section 11(1)(e), deemed input tax claim on a second-hand-goods purchase under Section 20(8), or standard-rated VAT at 15% under the Value-Added Tax Act 89 of 1991.
  • The VAT rate is 15%. The tax fraction is 15/115 (approximately 13.04%), applied to the lesser of consideration or open market value when calculating deemed input tax on a second-hand-goods purchase.
  • Going-concern zero-rating requires both parties to be registered VAT vendors at the time of supply, the supply to include the assets necessary for continued operation, and the agreement to state in writing that the supply is of a going concern at the zero rate.
  • Deemed input tax (notional input tax) is available to a registered VAT vendor buyer acquiring from a non-vendor seller for use in making taxable supplies; the claim is made through the buyer's VAT return and supported by the documentation prescribed by SARS.
  • VAT and transfer duty are mutually exclusive. Where the seller charges VAT (zero-rated or standard-rated), the transaction is not subject to transfer duty under the Transfer Duty Act 40 of 1949. Where the seller does not charge VAT, transfer duty applies.
  • Getting the VAT treatment wrong costs up to 15% of the purchase price plus interest and possible penalties; getting it right is one of the most significant single financial decisions in any commercial farm purchase.

The Three VAT Outcomes

Every farm purchase in South Africa lands in one of three VAT outcomes. The outcomes are mutually exclusive: only one applies to a given transaction. Which one applies depends on the seller's VAT status, the buyer's VAT status, and whether the going-concern conditions can be met.

Zero-Rated Going Concern

Both parties are VAT vendors; the farm is sold as an operating enterprise. The supply is zero-rated under Section 11(1)(e).

This is the cleanest VAT outcome and almost always the best result for both parties. VAT is charged at zero percent, no transfer duty applies, and the buyer carries no VAT cash-flow burden. The conditions are strict: both seller and buyer must be VAT-registered at the time of supply, the enterprise must be capable of separate operation, the agreement must state in writing that the supply is of a going concern at the zero rate, and the supply must include the assets necessary for continued operation. Get a specialist tax practitioner to draft the going-concern clause; do not rely on a residential sale-agreement template.

Deemed Input Tax (Second-Hand Goods)

Seller is not a VAT vendor; buyer is registered and will use the farm for taxable supplies. Buyer claims notional input tax under Section 20(8).

Where the seller is not a VAT vendor (private individual, deceased estate, deregistered vendor, or another category not in the VAT system), the farm is treated as second-hand goods in the buyer's hands. A VAT-registered buyer who acquires the farm for use in making taxable supplies can claim a notional input tax deduction calculated at the tax fraction (15/115) applied to the lesser of the consideration paid or the open market value. The claim is documented through the buyer's VAT return and supported by the seller's identity, the agreement, and proof of payment.

Standard-Rated VAT at 15%

Seller is a VAT vendor but the transaction does not qualify as a going concern, or both parties choose to apply VAT at the standard rate.

Where the seller is registered but the going-concern conditions are not satisfied (for example, the assets necessary for continued operation are not included, or one of the parties is not a vendor), VAT applies at 15% on the supply. The buyer (if a vendor using the farm for taxable supplies) can claim full input tax on the VAT charged. Transfer duty does not apply where the seller charges VAT. This route is rarely optimal compared with going-concern zero-rating; it tends to surface as a fallback when the going-concern conditions cannot be met.

The Eight-Step Process to Optimise the VAT Outcome

  1. 1. Determine the seller's VAT status

    Ask in writing whether the seller is currently a registered VAT vendor and request the seller's VAT number. Confirm independently through SARS where the consideration warrants it. The seller's VAT status is the single fact that determines which of the three VAT outcomes applies. Sellers occasionally describe themselves as "VAT registered" when they have in fact deregistered; sellers occasionally describe themselves as private individuals when they have farmed through a vendor entity. Verify rather than assume.

  2. 2. Determine your own VAT status as buyer

    For going-concern zero-rating, you must be a VAT vendor at the time of supply. For deemed input tax on second-hand goods, you must be a VAT vendor and you must intend to use the farm for taxable supplies. If you are not yet registered, the decision whether to register before signing materially affects the VAT outcome. A tax practitioner who understands agricultural enterprises is the right person to make that call.

  3. 3. Decide whether the farm is being sold as a going concern

    A going-concern sale includes the operating farming enterprise: the land, the registered water-use entitlements, the irrigation infrastructure, the standing crops or breeding livestock, the operational records, and any contracts that form part of the enterprise. Selling only the bare land, without the operating enterprise, does not qualify as a going concern. Selling only part of the enterprise needs careful structuring. The decision shapes the whole transaction.

  4. 4. Get the VAT treatment in writing in the sale agreement

    For going-concern zero-rating under Section 11(1)(e) of the Value-Added Tax Act 89 of 1991, the agreement must state expressly that the supply is of a going concern, that both parties are vendors, and that the supply is zero-rated. For a second-hand-goods purchase, the agreement should record the seller's non-vendor status, the consideration, and the buyer's intended use of the property in making taxable supplies. Verbal understandings about VAT treatment do not survive a SARS review.

  5. 5. Structure the conveyancing to reflect the chosen VAT treatment

    The conveyancer drafts the transfer documents to align with the VAT treatment in the sale agreement. Zero-rated going-concern transfers are not subject to transfer duty; second-hand-goods transactions where the seller does not charge VAT attract transfer duty under the Transfer Duty Act 40 of 1949. A conveyancer who does not regularly handle agricultural transactions can get this wrong; a specialist conveyancer pays for themselves on this point alone.

  6. 6. Confirm zero-rating conditions are met before signing (going-concern route)

    Before signing a going-concern agreement, confirm that both parties remain VAT-registered, that the operating enterprise will pass to the buyer with the assets necessary for continued operation, and that the written documentation supports the zero rate. SARS has the right to disallow zero-rating on review if the conditions were not in fact met at the time of supply. The penalty is significant: standard 15% VAT becomes payable, plus interest and possibly penalties.

  7. 7. Compile the documents for a deemed input tax claim (second-hand-goods route)

    For a deemed input tax claim, retain: the written sale agreement, the seller's identity documents and confirmation that the seller is not a VAT vendor, proof of payment, a calculation showing the tax fraction (15/115) applied to the lesser of consideration or open market value, and the relevant SARS declarations and records. The notional input tax is claimed through the buyer's VAT return in the period in which payment is made (or in accordance with the buyer's VAT cycle and SARS practice).

  8. 8. Claim through your VAT return and retain records

    Notional input tax is claimed in the buyer's VAT return in line with SARS prescribed practice. Records supporting the claim must be retained in accordance with the VAT Act and SARS retention rules. A SARS review of an agricultural deemed-input-tax claim is best handled with clean documentation and a clear paper trail. Get the recordkeeping right at the outset; do not try to reconstruct it three years later.

Common VAT Mistakes on Farm Purchases

  • Assuming the seller's VAT status without confirming it. The single most expensive error in farm-purchase tax planning. Get the VAT number, confirm independently where the consideration warrants it.
  • Drafting a going-concern clause without meeting the conditions. If both parties are not vendors at the time of supply, or the assets necessary for continued operation are not transferred, SARS can disallow the zero rate. The transaction then attracts 15% VAT, plus interest, plus possible penalties.
  • Using a residential conveyancing template for an agricultural sale. A residential template does not handle the VAT treatment, the going-concern clause, or the second-hand-goods documentation. A specialist agricultural conveyancer is essential.
  • Assuming both VAT and transfer duty apply. They do not apply at the same time on a single transaction. Confirm which applies before the offer is signed.
  • Not registering for VAT when the farm will be used to make taxable supplies. An unregistered buyer of a farm used to make taxable supplies forgoes the input tax recovery that registration unlocks. The decision belongs at the structuring stage.
  • Relying on a non-specialist tax practitioner. Agricultural VAT is technical, with specific case-law and SARS practice. Engage a tax practitioner who actively handles agricultural transactions.
  • Poor recordkeeping for the deemed input tax claim. SARS can review years later. Clean contemporaneous documentation (agreement, seller identity, non-vendor confirmation, payment proof, calculation) is the buyer's best protection.

Frequently Asked Questions

What is deemed input VAT on a farm purchase?

Deemed input VAT (also called notional input tax) is a VAT-recovery mechanism for a registered VAT vendor who buys property from a non-vendor seller for use in making taxable supplies. Under Section 20(8) of the Value-Added Tax Act 89 of 1991, the buyer is treated as if input VAT had been charged on the purchase, calculated at the tax fraction (15/115) applied to the lesser of the consideration paid or the open market value. The deemed input is claimed through the buyer's VAT return. The mechanism prevents a tax cascade where second-hand goods would otherwise carry embedded VAT that the next vendor could not recover.

What is a zero-rated going-concern sale and how does it work?

Under Section 11(1)(e) of the Value-Added Tax Act 89 of 1991, a sale of an enterprise as a going concern between two registered VAT vendors can be zero-rated. The conditions: both parties must be VAT vendors at the time of supply, the supply must consist of an enterprise capable of separate operation, the assets necessary for continued operation must be included, and the agreement must state in writing that the supply is of a going concern at the zero rate. The buyer pays no VAT on the transaction, no transfer duty applies, and the seller does not have to account for VAT. It is almost always the optimal outcome for both parties when the conditions can be met.

Does the seller have to be VAT-registered for me to claim deemed input tax?

No. The deemed input tax mechanism applies precisely where the seller is NOT a VAT vendor. The buyer must be a VAT vendor; the seller must not be (or must not be charging VAT on the sale). If both parties are vendors, the going-concern zero-rating route applies (if conditions are met) or standard-rated VAT applies. The three routes are mutually exclusive: only one applies to a given transaction.

How much deemed input tax can I claim on a farm purchase?

The notional input tax is calculated at the tax fraction (15/115, which equals approximately 13.04%) applied to the lesser of the consideration paid or the open market value at the time of supply. On a R10 million farm purchase from a non-vendor seller, the notional input tax would be approximately R1.304 million, claimed through the buyer's VAT return in line with SARS prescribed practice. The cash-flow value of that claim is one of the most significant single tax outcomes in any commercial farm purchase from a private seller.

What documents does SARS require for a deemed input tax claim?

At minimum: the written sale agreement, proof of the seller's identity, confirmation that the seller is not a VAT vendor (or is not charging VAT on the sale), proof of payment of the consideration, the buyer's VAT calculation, and any SARS declarations or supporting forms applicable at the time of the claim. SARS has the right to review the claim; clean, contemporaneous documentation is the buyer's best protection. Engage a tax practitioner who actively handles agricultural deemed-input claims rather than relying on a generalist.

Does VAT and transfer duty apply at the same time on a farm sale?

No. The two are mutually exclusive on a single transaction. Where the seller charges VAT on the supply (standard-rated or zero-rated), the transaction is not subject to transfer duty under the Transfer Duty Act 40 of 1949. Where the seller does not charge VAT (because the seller is not a VAT vendor, or the supply falls outside VAT), transfer duty applies in the ordinary course. A common buyer error is assuming both apply; a common seller error is assuming neither does. Confirm the position in writing as part of the offer structuring.

What is the VAT treatment if the seller is a deregistered vendor?

Where the seller has formally deregistered as a VAT vendor before the supply, the seller does not charge VAT on the sale and the transaction is treated as a second-hand-goods supply for VAT purposes (with deemed input tax potentially available to a registered vendor buyer). However, deregistration timing matters: a seller who deregisters in the period of the supply, or who deregisters specifically to facilitate a sale, may be assessed differently by SARS. Get a tax practitioner to confirm the position before relying on it.

Should I structure my purchase through a VAT-registered entity?

It depends on the use to which the farm will be put. If the farm will be used to make taxable supplies (active farming for sale at the standard rate, or agricultural products that fall within the VAT net), buying through a VAT-registered entity unlocks input tax recovery (either deemed input tax on a second-hand purchase or full input tax on a standard-rated supply). If the farm is being acquired for personal use, lifestyle farming with no commercial intent, or for a use that does not generate taxable supplies, VAT registration brings no benefit and adds compliance cost. The decision belongs at the structuring stage of the offer, not after.

Sources & Regulatory References

All statutory references below are current South African legislation as at the page review date. Links go to the relevant regulatory authority where a stable official destination exists.

  • Value-Added Tax Act 89 of 1991. The governing VAT statute. Section 11(1)(e) governs the zero-rating of going-concern sales; Section 20(8) governs deemed input tax on second-hand goods. Administered by the South African Revenue Service (SARS).
  • Transfer Duty Act 40 of 1949. Governs transfer duty on the acquisition of immovable property where VAT is not charged on the supply. Administered by SARS.
  • Property Practitioners Act 22 of 2019. Governs property practitioners and mandate agreements. Administered by the Property Practitioners Regulatory Authority (PPRA).
  • Deeds Registries Act 47 of 1937. Governs the transfer of title that closes out a farm purchase. Administered by the Chief Registrar of Deeds.
  • Financial Intelligence Centre Act 38 of 2001 (FICA). Verification of identity, address and source of funds for every property transaction. Administered by the Financial Intelligence Centre.

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