VAT

Question 1

PRINCIPLES

VAT

Answer 1

• What is the VAT ISSUE?
• Consider if dealing with connected persons
• No VAT if not a VAT vendor
• Recovery of disbursement is not a supply so no vat
• Buyer liable for transfer duty
• VAT is consumption based and destination based tax

0. X is a registered VAT vendor and is obligated to account for VAT on supply of G/S in the course of the furtherance of an enterprise at 15/0% unless it is an exempt supply
1. Kind of supply
2. Time of supply
3. Value of supply
4. Valid Tax invoice s20
5. Conclude

Important key words:

• Enterprise
• Goods
• Service
• Consideration
• Where is the service consumed
• Pay VAT to extent of non taxable supplies (if imported a good)

-Not entitled to claim VAT input if buyer is not a VAT vendor and no VAT output is levied

Money is not in definition of goods or services therefore there is no VAT

Connected person valuation rule does not apply to purchaser s10(4)

• Cannot register as a VAT vendor if only making exempt supplies
• If VAT levied no transfer duty
• Making taxable supplies therefore levy output VAT
• If there is no finance charges not an ICA it is a rental agreement
• If dealing with VAT adjustment, consider VAT implications before and after
• If asset is used for 100% taxable supplies- no apportionment
• Xxx paid in the course or furtherance of the supply and VAT were levied in terms of s 7(1)(a) by Greenwood (Pty) Ltd, therefore input in terms of s 1 can be claimed
• import of the network equipment will result in a VAT charge being payable by EOH on the imports
• going to be used to make taxable supplies the VAT paid on importation can be claimed as an input tax deduction (s1 input definition par
• Granting a right is a supply of services therefore there is VAT *15/115
• Failure to account for VAT will results in fines and penalties and interest
• No VAT deduction if no valid tax invoice (told no mention of VAT made in agreement)
• No VAT implications on disposal of shares exempt supply
• The VAT paid on importation can be claimed as an input tax deductions as the plant and machinery will be used to make taxable supplies.
• Leasehold improvements for no considerations 18C
• EE to ER services excluded from definition of enterprise
• Deposits held in trust account ( not yet consideration cannot account for VAT)
• No fiance charges (Not ICA) it is rental agreement
• Suspensive sale agreement s24J
• Transfer Duty does not form part of adjusted cost
• Consider residency in terms of s1 especially if there are non residents involved
• A subsidiary is a separate legal entity and just because the holding company is registered for VAT doesn’t mean the subsidiaries are registered and could not charge South African VAT.
• If used for making taxable supplies there is a full input tax deduction

Question 2

Importation

Answer 2

• Import subject to VAT as used to make taxable supplies therefore 100% input VAT can be claimed back
  -Transaction of buying the Automatic Biodegradable Baby Diaper Making Machine will constitute an import of goods and VAT will be payable on the import (s 7(1)(b) of the VAT Act).
  -Subject to VAT at 15%
  -Time of supply: when the machinery is released for home
  consumption, can claim input as soon as all documentation can
  be provided to SARS
• No VAT on interest as financial service is exempt
• No VAT consequences will arise on the capital portion of the repayment as the VAT consequences would already have been accounted for on the purchase of the asset
• No VAT consequences will arise on the foreign exchange differences on the payments of the debt owned to the foreign supplier as currency fluctuations are also part of financial services

1. Goods
   - Output Tax on importation of goods
   - Input tax claimed based on extent of making taxable supplies
2. Services
   - Deemed output Tax
   - to extent of making taxable supplies

• Consider if it is an enterprise or a taxable supplies?

Question 3

Used as trading stock now it’s personal use

Answer 3

1. Output Tax 10(4)

• levied at 100%
• Employee and employer are connected persons
• Employee cannot claim full VAT (NV)
• Sale less than MV
• Therefore value at OMV

2. 16(3)(h)

Question 4

Vat on Shares

Answer 4

No output vat on share issue as it is a financial service as defined

Question 5

Lessee VAT implications

Answer 5

1. Output Vat
   - Lease improvement undertaken
   - No consideration is received
   - Used for taxable supplies
   - Deemed supply of goods

Time of supply
-When leasehold improvement is complete

Value of supply
-Deemed to be zero

Income tax implications

1. Leasehold improvement are capital in nature no deduction
2. Capital allowances limited to contractual cost amount
3. s13 no reference on who is owner
4. Claim allowance on excess amount
5. Contractual cost amount—>cost/term*x/12

Excess forms part of the base cost

Question 6

Lessor VAT implications

Answer 6

Output Tax
-Deemed taxable supplies to extent used for making non taxable supplies

Time of supply
-At completion

Value of supply

• Tax fractionobligatory improvement costnon taxable supplies%
• No input tax deduction iro of improvements

Input Tax
-Claim input vat since make 100% taxable supplies (Actual costtax fraction)
-no vat on residential since exempt supply
-additional input vat lower of cost/MV15/115
(Residential cost)

Question 7

Sale of a going concern

SELLER

Answer 7

Kind of supply: Supply of GC

• Deemed supply
• Seller carries mainly taxable supplies therefore full price is zero rated, the part not for taxable supplies, also deemed to be supplied in course of furtherance of enterprise
• Change in use adjustment from partly taxable to 100%. Additional input VAT
• Time of supply is date sale is made (invoice or payment)

OUTPUT VAT
-sale of going concern *0%

INPUT VAT (s16(3)(h))
-15/115*value of taxable supplies (lower of cost or OMV)*%non taxable use

Question 8

Sale of a going concern

BUYER

Answer 8

INPUT VAT
-Going concern sale *0%

OUTPUT VAT (s18A adjustment)

• value of going concern
• less 100% for taxable supplies (incl goodwill)
• less input tax denied

No transfer duty since VAT at 0%
Output tax adjustment

Question 9

Installment Credit Agreement

Answer 9

• Seller levies output VAT upfront on cash value

- Buyer claims full input VAT upfront

Question 10

Second hand goods

Answer 10

• CP not applicable has own rules. Does not apply to purchaser
• Notional or deemed input Tax deduction as used to make taxable supplies
• Acquisition of property is a second hand good acquired by way of non taxable supply
• Input vat limited to transfer duty paid

For seller (non vat vendor)
-no output VAT levied
-Transfer duty is payable
-buyer can claim notional input tax deduction
15/115 lesser of -OMV
-Consideration paid
To the extent of payment

Question 11

Fringe Benefit

Answer 11

-Sale of goods/services is output VAT therefore when goods/services are given to employees

Question 12

Right of use of motor vehicles

Answer 12

1. Determined value always excludes VAT
   =15% DBM
2. If input tax denied *0.3%
   If input tax not denied *0.6%
3. Employee bears costs of repairs and maintenance
   - less R85 pm

4*months

5 * 15/115

Question 13

Bad debts s22(1)

Answer 13

Output tax levied so there is an input tax adjustment
-Amount written off/Total value of supply *full output

-if recovered it triggers output tax adjustment

Question 14

Deregister as Vat vendor

Cease to be a Vat vendor

Answer 14

1. Separate value of supply for each asset

Question 15

Cease to be a VAT vendor

Answer 15

• Assets, lower of cost/ MV * 15/115
• Not applicable if output tax already considered
• Assets denied 0
• Creditors older than 12 months *15/115
• Therefore deemed output tax
• Input tax - irrecoverable debts s22
  Therefore VAT refundable or payable on deregistration
  ———————————————————————-
• On vat deregistration there is a deemed supply
• Time: immediately before you cease to be a vendor
  -Lesser of VAT or OMV

Question 16

Sale of property to trust

Answer 16

• Sale is a supply of goods and services and is a vatable transaction
• Sale can be sale of a going concern (zero rated)
• Even though trust is a vat vendor, the supply is not sale of going concern as supply is just of a business structure rather than income earning activity
• VAT needs to be accounted for on proceeds of sale
• Trust will claim VAT paid as input tax deduction as it will be making taxable supplies

Question 17

Acquire asset from non vendor

Answer 17

• Would have paid transfer duty on acquisition and claimed notional input tax
  -Provided:
  Would have been required to have required documentation to support notional input tax credit
• Entitled to input tax credit if:
• Asset registered in its name in deed office
  -To extent paid for it
  -Notional input tax lower of consideration ot omv @15%

Question 18

Second hand goods export

Answer 18

• Co A and foreign Co are CP
• CP value of supply rule NA
• Foreign Co is separately identifiable and maintains own independent accounting system therefore independent branch
• Goods deemed to be furtherance of its enterprise
• Exported goods zero rated
• Zero raing NA as notional input claimed on second hand goods
• Output vat

Question 19

Change in use adjustment

Answer 19

• Transfer duty would have been payable but does not form part of adjusted cost

Question 20

Change in use

Answer 20

Vat Act
S18(4) 0% to wholly or partly (on day % use change)

S18(1) wholly or partly to 0% (on day % use change)

S18(5) partly to more (end of year)

S18(2) wholly or partly to decrease ( end of year )

Question 21

Travel allowance and ROUA

Answer 21

Travel allowance

• No vat as transfer of money and not supply of goods or services
• Deductible s11(a)
• Cash payment xxxx +
• Tax saving (above *28%) -

ROUA

• s18(3)
• Interest s24J
• Output Vat -
• Input Vat +
• Tax saving *28%