The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading realtor yesterday urged the Government to eliminate potential market “confusion” by reducing the Value-Added Tax (VAT) rate on conveyances to 5 per cent, thereby maintaining the existing tax split.

George Damianos, head of Damianos Sotheby’s International Realty, told Tribune Business that the move to apply 7.5 per cent VAT to all real estate transactions worth upwards of $100,000 had shifted the greater tax burden to purchasers.

Prior to the 2015-2016 Budget amendments, such transactions attracted 10 per cent Stamp Duty. Typically, the tax burden was split 50.50 between buyer and seller, with each paying a rate equivalent to 5 per cent.

Now, on all residential deals worth greater than $100,000, the Stamp Duty rate has been reduced to 2.5 per cent to accommodate 7.5 per cent VAT. This, in effect, still keeps the overall tax rate at 10 per cent.

Mr Damianos, though, suggested that it would have been preferable “to keep the status quo” regarding the 50/50 tax split between buyer and seller for the sake of simplicity.

While such a split was still possible, Mr Damianos added that the “odd numbers” used for both tax rates made the calculation more difficult, especially given that the newly-published VAT Rules for real estate placed the burden of paying the 7.5 per cent levy on the buyer.

“It is a little confusing, but I’d love to see them say 5 per cent on Stamp Duty and 5 per cent VAT paid by the person whose name is on the conveyance. That would be wonderful. Keep everything simple,” Mr Damianos told Tribune Business.

“The 7.5 per cent is burdensome on the person whose name is on the conveyance, the purchaser. It would have been a lot simpler to leave Stamp Duty at 5 per cent and the purchaser on the real estate transaction pays 5 per cent VAT. The confusion would be taken out of it.”

Mr Damianos added that with the burden of paying the VAT placed fully on the purchaser, sellers may also have unrealistic expectations that their burden/share of the tax payment is reduced.

The VAT Rules stipulate that the VAT must be paid by the buyer, although it can still be split between buyer and seller/

John Rolle, the acting VAT comptroller, confirmed this to Tribune Business via e-mail, stating: “The VAT rules do not interfere with how the transferor and transferee decide to share the payment of the tax between themselves.”

Expressing concern about increasing the tax burden on international buyers, Mr Damianos said he could also see problems when it came to differentiating between gross and net prices.

Gross prices often include the seller’s legal fees and the realtor’s commission, but net prices do not. Given that both are VAT-able, Mr Damianos said that paying 7.5 per cent VAT on a ‘gross sales’ price would amount to double taxation or a ‘tax on a tax’.

And he added that the difference between ‘net’ and ‘gross’ prices was also liable to confuse the VAT, who may not believe they are receiving tax based on the proper ‘market value’.