Learning Unit 1 - Value Added Tax

Question 1

What are the two accounting bases that may be applied by a Vendor to account for VAT.

Answer 1

1. Invoice basis
2. Payment basis

Question 2

When is VAT accounted for on the invoice basis?

Answer 2

In terms of the invoice basis, VAT is accounted for when:
- an invoice is issued; or
- any payment is received,
whichever occurs first.

Question 3

What is the default basis for VAT registration?

Answer 3

Invoice basis

Question 4

How is VAT accounted for on the payment basis?

Answer 4

In terms of the payment basis, VAT is accounted for when:
- Payments are made (purchases); and
- Payments are received (sales).

Question 5

What threshold of goods supplied do vendors on the payment basis have to account for transactions on the invoice basis?

Answer 5

Vendors (except for public authorities, municipalities) who account for VAT on the payment basis are required to account for VAT on the invoice basis on the supply of any goods (other than fixed property) or service for which the consideration is R100 000.

Question 6

Who may account for VAT on the payment basis (sec 15 (2) of the ACT)?

Answer 6

• A public authority
• A municipality
• A municipal entity that supplies electricity, gas, water, drainage, etc.
• An association not for gain
• A water board
• A regional electricity distributor
• A natural person or unincorporated body of persons of which all the members are natural persons and the total value of taxable supplies in a 12 month period has not exceeded R2.5 million excl VAT

Question 7

What are the possible tax periods for VAT vendors?

Answer 7

a) Periods of two months ending on the last day of odd calendar months
b) periods of two months ending on the last day of even calendar months
c) Periods of one month ending on the last day of each month
d) Periods of six months ending on the last day of February and August respectively
e) Periods of 12 months ending on the last day of the year assessment.

Question 8

How to calculate VAT on importation (section (2)(a) VAT Act)?

Answer 8

VAT payable on goods imported from countries other than BLNS countries according to section 13(2)(a), 15% of the total of:
- Customs duty value; plus
- 10% of customs duty value plus
- Non rebated customs duty payable and any import surcharges

Question 9

How to calculate VAT on importation from BLNS countries (section 13 (2)(b))?

Answer 9

VAT payable on goods imported from BLNS countries is equal to 15% of the total of:
- Customs duty value; plus
- Non-rebated customs duty payable and any imported surcharges.

Question 10

Which section of the VAT act lists exempt supplies?

Answer 10

Supplies classified as exempt supplies are set out in section 12 of the VAT act.

Question 11

What are the VAT implications on the supply of a dwelling (residential accommodation)?

Answer 11

The letting of a house or flat for residential purposes is exempt from VAT (section 12 (c) (i)).

Question 12

What are the implications in respect to transfer duties and VAT on sale of commercial accommodation?

Answer 12

There could never be both transfer duties and VAT on a single transaction. If a sale of property attracts VAT, no transfer duty will be payable. If it does not attract VAT, transfer duty will be payable..

In all cases, VAT provisions take precedence. One must first establish whether or not the sale is subject to VAT (at either standard or zero rated); if so, transfer duty is not payable

Question 13

Is commercial accommodation subject to VAT?

Answer 13

Commercial accommodation is subject to VAT.

Question 14

What are the VAT implications on commercial accommodation (section 10 (1))?

Answer 14

Output VAT must be levied on the full value of the supply where accommodation and domestic goods and services are supplied by a hotel, boarding house of similar establishment for a period of 28 days or less.

Where the domestic goods are supplied at a all inclusive charge in an enterprise supplying commercial accommodation for an unbroken period exceeding 28 days, the consideration in money is deemed to be 60% from day one if the period exceeds 28 days.

Question 15

May an enterprise claim tax on the full value if the occupant of the accommodation is only taxed on the portion of the value of accommodation provided?

Answer 15

If an occupant is only taxed on the portion of the value of the accommodation provided to him, the enterprise itself may deduct input tax as if the occupant is taxed on the full value.

Question 16

What are the VAT implications where separate prices are charged for accommodation in a room and any other services rendered (meals, cleaning services etc.)?

Answer 16

If an occupant stays for an unbroken period exceeding 28 days, the charge must be apportioned between the room (accommodation) provided and the other services. VAT is levied at 100% on the other services and 60% on the fee for the room.

The exception is where all services are supplied together with the room at an all inclusive price.

Question 17

What is consideration? (Pg 45)

Answer 17

Consideration = Value plus VAT

Question 18

Are indemnity payments considered a deemed supply?

Answer 18

Yes. If for example, a vendor’s trading stock is stolen and he receives cash from his insurance company, he is effectively in the same position as he would have been had he sold the trading stock. SARS wants the output VAT on that disposal. Input tax on short term insurance policy, the vendor is entitled to claim the input tax on the premium.

Question 19

What is the output VAT affect If the insurer replaces the damaged or stolen goods?

Answer 19

There can be no output VAT consequences for the vendor, as there was no indemnity payment.

Question 20

What is the value of consideration of the supply of goods to a connected person (reference the relevant section in the VAT Act)?

Answer 20

Value of the supply: Connected persons section 10 (4)

When a vendor supplies goods or services to a connected person for:
- No consideration; or
- for a consideration that is less than the open market value; or
- for consideration that cannot be determined at the time; and
- the connected person would not have been able to claim a full input tax credit.

the consideration of the supply is deemed to be its open-market value.

Question 21

What is the value of supply in respect to items supplied for no considerations (reference the relevant act).

Answer 21

Section 10(23) of the VAT Act:

Where a supply is made for no consideration, the value of the supply is deemed to be nil (excluding connected persons).

Example: Buy 1 get 1 free. No output VAT on the “free” product.

Question 22

May VAT be claimed on the acquisition of second hand goods (whether acquired from a vendor or non-vendor. Reference the relevant section in the Act)?

Answer 22

Sections 18 and 20. Deemed input tax on second-hand goods.

When second-hand goods are acquired from a resident of South Africa (who is either not a VAT vendor), and the goods are situated in South Africa, deemed input VAT may be claimed.

Question 23

How is input tax calculated where a vendor uses the goods partially for the making of taxable supplies? Make reference to the “de minimis” rule.

Answer 23

If a vendor uses the goods or services only partially in the course of making taxable supplies, either of the following input tax deductions may be made:

• if the taxable use is not less than 95%, the “de minimis” rule applies and a full input tax deduction may be claimed
• If it is less than 95% then then the input tax must be apportioned by the vendor.

Question 24

Name and describe the method applied in apportioning input VAT

Answer 24

Turnover based method

A = B * C / D where:
A = the deductible input tax
B = total amount of input tax
C = the value of all taxable supplies made during the period
D = the value of all supplies made during the period.