Category: Tax (page 1 of 13)

Tax liability in financial emigration

Section 9H of the Income Tax Act deals with matters relating to the cessation of residency in South Africa.

This section essentially states that where a person that is a resident ceases to be a resident during any year of assessment, that person must be treated as having disposed of his assets on the date immediately prior to ceasing his residency, and re-acquiring the same assets on a date immediately thereafter. This is referred to as a “deemed disposal”. Similarly, the year of assessment will be deemed to have ended immediately prior to the cessation and to have started on the next day.

Such a “deemed disposal” does not relate to the immovable property that such a person may hold in South Africa.

As a result of his ceasing to be a South African tax resident (an event simply declared by ticking a box on the annual income tax return when submitted), a so-called “deemed disposal” (also sometimes referred to as an “exit charge”) will be activated in terms whereof all the individual’s assets will be deemed to have been disposed of, at market value, on the day before he ceased to be a South African tax resident.

This event, therefore, potentially gives rise to capital gains tax incurred on the deemed disposal. Excluded from this regime, as stated above, is South African immovable property, cash and (although not explicitly stated, though included on a very technical basis) accumulated retirement-related funds. Apart from these assets, all remaining South African and other worldwide assets are included in the “deemed disposal” regime.

Before a taxpayer decides on cessation of tax residency, an investigation should be done into possible tax treaty relief the individual may qualify for. SARS has stated that “an individual who is deemed to be exclusively a resident of another country for purposes of a tax treaty is excluded from the definition of “resident”. It follows that while an individual may qualify as a resident under the ordinarily resident or physical presence tests, that individual will not be regarded as a resident for South African tax purposes if that person is a resident of another country when applying for a tax treaty.”

Based on this, it is clear that section 9H of the Income Tax Act immediately becomes applicable to a taxpayer in the case of financial emigration or the cessation of tax residency, for whatever reason, and may increase tax liability in the current year of assessment in which the cessation of residency occurs. One must, however, always remember the exemptions described above, and in the event that emigration and/or ceasing to be a tax resident is considered, pre-emigration planning is of utmost importance to ensure that a smooth and fluid transition plan is formulated.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Section 7C of the Income Tax Act explained

What is section 7C?

This section of the Income Tax Act is an anti-avoidance measure aimed at transactions between connected persons and trusts, where a trust is funded by low interest or interest-free loans. This is usually done to ensure that assets form part of the trust’s capital, and the funder (who is usually a trustee or founder of the trust) allows for the transfer of ownership of the assets, and the creation of a loan account in said person’s favour.

The sections allow for any loan, advance or credit by a connected person, directly or indirectly to a trust, and this loan, advance or credit incurs no interest, on the loan, advance or credit, or incurs interest at a rate lower than the official rate, an amount equal to the difference between the amount of interest incurred, and the amount it would have incurred had an acceptable interest rate (official rate)  been used, will be deemed as a donation in the hands of the lender. For purposes of this section, the same principle applies where a company who is owned by trust loans on terms that are not regarded as commercial or market-related and no interest is charged.

What is the reasoning behind section 7C?

Trusts have traditionally been a very popular estate planning tool. In the past, the practice was to sell growth assets to a trust and to then extend an interest-free loan to the trust for that sale price. That would mean that the estate of the seller would be pegged at that value because the loan would not increase in value as time goes by while the assets would grow in the trust. Section 7C seeks to address this practice, as it is argued such a transaction should be seen as having no commercial sense, as only the trust benefits. The seller earns no interest on the loan and hence derives no value or benefit.

How does section 7C work?

Section 7C deems the interest that is not levied or charged on an interest-free loan, as a deemed donation on the last day of each tax year for a loan that was outstanding for any period during that preceding tax year.

The interest forgone is calculated by using the official interest rate in the 7th Schedule to the Income Tax Act, currently being 7.25%. This would be regarded as a deemed donation on the last day of the tax year and as a consequence donations tax would be levied on that donation.

Where there is a low interest-bearing agreement, the difference of the official interest rate and the lower interest rate will determine the deemed donation.

Trusts and loan accounts

Should I be charging interest on a loan, advance or credit to a Trust?

Making section 7C practical will require the use of a few examples to illustrate its effect.

Example 1

A loan in the amount of R10 million is advanced by an individual to a trust with no interest charged by the lender. The individual will choose to apply his annual donations tax exemption of R100,000.00 to the deemed donation.

The deemed donation will be R725,000 (R10 million x 7.25%). The individual then applies his annual exemption of R100,000.

The donations tax liability will be calculated as follows: R625,000 x 20% = R125,000 which the individual will be required to pay.

Example 2

A loan in the amount of R10 million is advanced by an individual to a trust with an annual interest charge of 5% by the lender. For this example, we will ignore the lenders annual donations tax exemption.

The deemed donation will be calculated as follows: R10 million less x 2.25% (the difference between interest levied and the official rate or 7.25% – 5%). The deemed donation will be R225,000.

The actual donations tax liability is then R225,000 x 20% = R55,000. The lender may now apply his annual R100,000 donations tax exemption.

It is clear that the non-charging of interest, or charging at a lower rate, may result in an increase in personal tax liability for the lender.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Are my donations being taxed?

BPR 338 deals with the tax treatment of payments made to a Public Benefit Organisation (PBO) at a fundraising event, under section 30 of the Income Tax Act. The ruling is essentially an interpretation of section 18A of the Act and seeks to clarify the situation for PBOs and funders.

In terms of the transaction, the Applicant (a resident company registered as a PBO) will host an event for the explicit purpose of fundraising, but this event will be managed by a third-party events management company.

As is commonplace, persons attending the events will make payments to participate in activities taking place at the event, as well as make donations. The events management company manages an electronic system that will enable funders and donors to make payments at the event. This system is accessible through various roaming electronic touchscreen devices, developed for the distinct purpose of distinguishing between donations and payments for activities.

By the end of the evening, each attendee is required to settle their required payments in respect of the relevant transactions they entered into, with one single card payment. The system then determines which attendee is entitled to a section 18A certificate, as well as the amount to be reflected on the receipt. Only donations made by attendees are reflected on the section 18A receipt.

One condition and assumption of this ruling is that the payment tracking system must, as closely as practicable, conform to the one proposed and its intended function, accounting for the donations of money separately from payments, must be easily verifiable.

The ruling made by SARS is that donations made and identified as such by the applicant’s payment tracking system at the fundraising event will constitute bona fide donations made to a PBO under section 18A of the Act, and as such, the applicant may issue the donors with section 18A receipts in respect thereof.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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For how long can your taxes haunt you?

In terms of section 99 of the Tax Administration Act, 28 of 2011, an assessment may not be made three years after the date of an original assessment by the South African Revenue Service (SARS), or in the case of a self-assessment by a taxpayers (such as in the case of a Value-Added Tax return), five years after the date of an original assessment. These periods are generally referred to as the prescription rules and are in place to ensure that finality is eventually brought to a tax period. Essentially, therefore, the prescription rules provide that tax periods do not remain open indefinitely. There are, however, some exceptions to the general rules.

Fraud, misrepresentation and non-disclosure

Generally, the prescription period that prohibits SARS from issuing an assessment does not apply if the reason the full amount of tax was not charged was due to fraud, misrepresentation, or non-disclosure of material facts. When the tax is a self-assessment, such as VAT and PAYE, the basis on which the period of limitation does not apply differs in that it refers to fraud, as well as intentional and negligent misrepresentation or non-disclosure.

This concept was recently under the spotlight in the Western Cape High Court in the matter of the Commissioner for the South African Revenue Service v Spur Group (Pty) Ltd (A285/2019) (judgment delivered on 26 November 2019). Although the case dealt primarily with whether contributions by the respondent to an employee share scheme is deductible for income tax purposes, the matter of prescription was also relevant, since the additional assessments relate rather old tax periods (2005 to 2009).

SARS argued that since the respondent answered “no” to certain questions on an income tax return, they assessed the taxpayer on a different basis than they would have had the question been answered differently. Essentially, SARS argued that answering “no” to certain questions amounted to “misrepresentations” and “non-disclosures” and they were therefore not prohibited from raising additional assessments.

In a minority judgement, judge Salie-Hlophe did not agree with the argument from the taxpayer that, although the question may have been answered incorrectly on a tax return, it did provide SARS with all the necessary information, being its financial documents (presumably, including financial statements), and is, therefore, by default, not guilty of non-disclosure or misrepresentation.

The judge indicated that this contention would be contra bones mores as it would amount to excusing a taxpayer in circumstances where it had not properly disclosed its own information on the tax return. Differently stated, it would exonerate a taxpayer who had made improper disclosures in his return by allowing him to rely on other documents furnished to SARS, however, ex facie his return, he had clearly misrepresented the true facts. It would offend the statutory imperative of having to make full and proper disclosures in a tax return but would also allow taxpayers to omit its true affairs and subsequently claim that the onus was on SARS to have uncovered it and acted upon it in good time. Furthermore, it would impose too high a standard of care or diligence on the SARS assessing officials. Very significantly, the judge makes the following comment:

“Completion of the tax returns is on par with a statement under oath. The taxpayer effectively vouches that it contains the truth, the whole truth and nothing but the truth.”

Consequently, the judge found that Spur’s incorrect answers to the questions in the tax returns constituted misrepresentations and non-disclosures of material facts which caused the full amount of tax chargeable in the 2005 to 2009 years of assessment not to be assessed to tax by the Commissioner.

The crucial lesson from this minority judgment is that the highest degree of diligence must be exercised when completing a tax return since it could negate any chances of relying on prescription.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Understanding the Diesel Refund Scheme

Farming is a qualifying activity under the Diesel Refund Scheme. Most farming enterprises will qualify to be registered for the Diesel Refund Scheme. The person carrying on the farming enterprise may, therefore, apply for registration with the Diesel Refund Scheme, provided the enterprise is registered for VAT.

In terms of section 75(1C)(a)(iii) of the Customs and Excise Act 91 of 1964 (the section):

“the Commissioner may investigate any application for a refund of such levies on distillate fuel to establish whether the fuel has been… (iii) delivered to the premises of the user and is being stored and used or has been used in accordance with the purpose declared on the application for registration…”

On 29 November 2019, the Supreme Court of Appeal (SCA), in a unanimous judgment in Commissioner for the South African Revenue Service v Langholm Farms (Pty) Ltd (1354/2018) [2019] ZASCA 163, provided guidance on the interpretation of the section.

Langholm Farms (Pty) Ltd (Langholm) operates a pineapple growing enterprise and delivers the fruit, using its own trucks, to a factory in East London for further processing. The trucks that are used for the transportation of the fruit to the factory are not refuelled on Langholm’s farm. After a diesel rebate audit was conducted by SARS on Langholm’s operations, they issued Langholm with a “Notice of intention to assess”, based on the following contentions:

  • The diesel used by Langholm for the transportation of the fruit was ‘non-eligible usage’ because they were of the opinion that a rebate could only be claimed in respect of diesel delivered, stored and dispensed from storage tanks situated on Langholm’s premises, which was not the case; and
  • SARS was of the opinion that the carting of the storage bins on the return journey from the factory’s premises to the farm was not a primary production activity

Without formally responding to SARS’s contentions, Langholm successfully approached the high court for a declaratory order that it is eligible for diesel rebate claims under the section when its trucks are refuelled at the Bathurst Co-op in East London.

Langholm interpreted the word ‘used’ in the section to mean either used on the premises or used elsewhere under schedule 6 of the Customs and Excise Act. Simply put, the case of Langholm is that ‘stored and used’ and ‘has been used’ refer to two different usages. One usage, they contend, is usage on the premises while the other is usage off the premises.

In considering this interpretation, the SCA confirms the statutory interpretation of rules in a South African context:

“A statute must be interpreted in line with ordinary rules of grammar and syntax taking cognisance of the context and purpose thereof. That approach is equally applicable to a taxing statute.”

The court finds that a plain reading of the statute does not allow for the interpretation that Langholm seeks. The language of the section is clear and unequivocal and there is nothing in the context to suggest that any departure is warranted from the words used. As a result, the court finds that the section means that a taxpayer can only claim a refund for the diesel fuel stored and used on its own premises. The declaratory orders (by the high court) were, thus, granted on a mistaken view of the law.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Do you have tax debt?

With the tax filing season for individuals now closed, taxpayers may find themselves with tax debt that is due. This may be due to administrative penalties as a result of the non-submission of tax returns, the submission of a return without payment, only partial payment or debt arising from an audit assessment.

The South African Revenue Service (“SARS”) provides assistance to taxpayers in managing their tax debt. As an initial phase, SARS will remind taxpayers of the amount of tax due before the due date. This is done by way of an assessment with the relevant due date indicated thereon as well as courtesy notifications from SARS which acts as reminders to pay the outstanding amount. Paying the full outstanding tax debt at this point will ensure that no interest and penalties are levied against the taxpayer.

Once the due date has past and the debt remains outstanding, the taxpayer’s tax compliance status will change to ‘non-compliant’. SARS will, however, continue to send reminder notifications to the taxpayer to settle the debt.

At this point, it is important to note that the taxpayer may at any point request for remedial actions which could include a request to defer payment, the suspension of payment with the intention to lodge a dispute or to request a compromise.

Should taxpayers fail to settle the debt without requesting any of the remedial mechanisms, a notice of final demand will be issued. SARS may now appoint a third party who holds money on the taxpayer’s behalf to deduct the tax debt and to pay it over to SARS. For example, an employer or bank may be requested to deduct the debt from the taxpayer’s salary. Such a third party is legally obliged to act on behalf of SARS.

SARS also have other collection tools available to ensure all tax debts are paid. These include issuing a judgement against the taxpayer and having the taxpayer blacklisted as well as attaching and selling the taxpayer’s assets.

The take away is that taxpayers should ensure that all relevant tax debts are paid timeously to avoid interest and penalties being levied. Also, taxpayers should regularly update their contact details with SARS to ensure that they receive all relevant tax correspondence.

However, should taxpayers not be able to pay their tax debts in time or need assistance in managing their tax debts, they should contact SARS to request any of the remedial mechanisms. SARS’ website lists a number of contact details for taxpayers to engage with SARS on these matters depending on their location. Taxpayers could also contact their tax advisors or tax practitioners to assist them in making contact with SARS in order to settle all outstanding tax debts.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Taxation of foreign employment income

South Africa has a residence-based tax system, which means residents are taxed on their worldwide income, regardless of where that income was earned.  

South African tax residents living overseas and earning remuneration in respect of services rendered outside of South Africa are exempt from tax in South Africa, provided that the individual is outside of South Africa for a period or periods exceeding 183 full days (60 of which have to be continuous days of absence), during any 12 month period. 

There is currently no limitation on the foreign employment income exemption. 

From 1 March 2020, the first R1 million earned from foreign service income will be exempt from tax in South Africa, provided more than 183 days are spent outside SA in any 12-month period and, during the 183-day period, 60 days are continuously spent outside SA. 

This means that any foreign service income above the first R1 million will be taxed in South Africa at the relevant tax resident’s marginal tax rate. 

To prove to SARS that you comply with the section 10(1)(o)(ii) exemption, you need to keep record of your employment contracts and proof of payment of taxes abroad.  

When considering your approach to tax planning you should appoint a Tax Practitioner to ensure that you don’t step onto any landmines.   

In order to ensure that the tax system promotes the principles of fairness, it was legislated that foreign employment income earned by a resident should no longer be fully exempt. 

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Valuation of trading stock for tax purposes

On 27 September 2019, just over a year since delivering judgement in another matter with very similar facts, the Supreme Court of Appeal in CSARS v Atlas Copco South Africa (Pty) Ltd (834/2018) [2019] ZASCA 124 gave a judgement on the valuation of trading stock for income tax purposes.  

The general (and oversimplified) principle is that taxpayers are allowed, as a deduction, the value of opening trading stock during a year of assessment, while the value of the closing trading stock is required to be included in taxable income. From a tax perspective, the higher the value attributed to closing stock at the end of a tax year, the lower the cost of sales for that year will be and the greater the taxable income of the taxpayer. Conversely, the lower the value attributed to closing stock, the higher the cost of sales and the lower the taxable income for that year. The value of the trading stock is generally the cost thereof, less an amount which SARS may think is just and reasonable as representing a diminishing in that value due to damage, deterioration, change of fashion, decrease in the market value or for any other reason. 

Taxpayers often use accounting (or IFRS) values for the determination of stock values. These valuation methods usually involve a time-based approach. I.e. a write-down of stock if it has not been sold for several months. The more the number of months since the stock was last sold, the higher the write down. This approach is often based on internal policies. The court notes (in the previous judgement) that: 

If taxpayers had a free hand in determining the value of trading stock at yearend it would open the way for them to obtain a timing advantage in regard to the payment of tax, by adjusting the value of closing stock downwards. They could by adjusting these values manipulate their overall liability for tax in the light of their anticipations in regard to future rates of tax, future trading results, the need to incur significant expenses in the future and the like. 

The Court finds that IFRS values, based on net realisable value are explicitly forwardlooking and that using this value for tax purposeshas the effect that expenses incurred in a future tax year in the production of income accruing to or received by the taxpayer in that future tax year, become deductible in a prior yearWhether IFRS values was a sensible and business-like manner of valuing trading stock from an accounting perspective was neither here nor there for tax purposes. The concern was whether it accurately reflected the diminution in value of trading stockFor income tax purposes, the exercise is thus one of looking back at what happened during the tax year in question. 

SARS may only grant a just and reasonable allowance in respect of a diminution in value of trading stock in two circumstances. The first is where some event has occurred in the tax year in question causing the value of the trading stock to diminish. The second is where it is known with reasonable certainty that an event will occur in the following tax year that will cause the value of the trading stock to diminish. 

It may, therefore, be necessary that taxpayers keep to sets of trading stock valuations: one for accounting purposes and one for tax purposes.  

Although often only a timing issue between opening stock (for which a deduction is allowed) and closing stock (which is taxable)it could happen that the assessment in respect of the year during which the deduction applies, may have prescribed by the time the dispute relating to the closing stock matter has been finalised. In such an instance, any difference becomes permanent, and not merely a timing difference. It is therefore advisable that any disputes relating to trading stock be dealt with by taxpayers as a matter of urgency.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Belastingaftrekkings vir werknemers wat van die huis af werk

Al hoe meer werkgewers laat gesalarieerde werknemers toe om van die huis af te werk ten einde vermorsing van produktiewe ure terwyl hulle pendel, te vermy. Sodanige werknemers kan ’n tuiskantoor-aftrekking eis (wat toegelaat word ​​onder die afdeling “Ander Aftrekkings” van die persoonlike inkomstebelastingopgawe of ITR12-vorm) indien daar aan sekere streng vereistes voldoen word.

Die aftrekbaarheid van hierdie uitgawes word bepaal deur artikel 11 (veral paragrawe (a), (d) en (e), saamgelees met artikels 23 (b) en 23(m) van die Wet op Inkomstebelasting[1]). Die vereistes van al hierdie bepalings moet nagekom word voordat die betrokke werknemer vir die tuiskantoor-aftrekking kwalifiseer.

In die algemeen moet die werkgewer die werknemer toelaat om van die huis af te werk en moet die werknemer meer as 50% van sy/haar totale werksure van die huis af werk om vir hierdie aftrekking te kwalifiseer. Dit is belangrik om daarop te let dat die werknemer ’n spesifieke area in die huis moet hê wat uitsluitlik vir hierdie doel gebruik word (soos ’n aparte kantoor of studeerkamer) en dat hierdie area spesifiek toegerus moet wees vir die werknemer se ambag (byvoorbeeld ’n werktuigkundige se gereedskap, ’n tekenbord van ’n argitek of toerusting vir ’n dokter se ondersoekkamer). Hierdie vereistes is van toepassing op beide kommissieverdieners (waar meer as 50% van die totale vergoeding kom uit óf die kommissie óf ’n ander veranderlike vorm gebaseer op werkprestasie) en normale gesalarieerde werknemers (met veranderlike betalings wat minder as 50% van sy/haar totale vergoeding uitmaak).

Om die tuiskantoor-aftrekking te bereken moet die werknemer eers die totale vierkante meter oppervlakte van die tuiskantoor in verhouding tot die totale vierkante meter van die huis as ‘n persentasie bereken en hierdie persentasie op die tuiskantoor-uitgawes toepas. Hierdie berekeninge, asook afskrifte van alle relevante fakture, moet deur die werknemer wat hierdie aftrekkings eis bewaar word sou die Suid-Afrikaanse Inkomstediens stawende dokumentasie versoek.

Die tipe uitgawes wat geëis kan word, is onder meer die na verhouding aangepaste aftrekkings gebaseer op huur, die rente van verbandlenings, herstelwerk aan die huis en alle ander uitgawes wat verband hou met die werknemer se huis. Benewens hierdie uitgawes, sluit ander tipiese tuiskantoor-uitgawes telefone, skryfbehoeftes, eiendomsbelasting, en diensgelde, skoonmaak, kantoortoerusting en slytasie, in.

Werknemers wat nie ’n kommissie verdien nie, maar die grootste deel van hul tyd op die pad deurbring om kliënte te besoek en hul pligte hoofsaaklik op hul kliënte se perseel verrig, kwalifiseer gevolglik nie vir die aftrekking van uitgawes vir tuiskantore nie. Alleeneienaars of vryskutwerkers wat van die huis af werk, kan outomaties al die uitgawes vir tuiskantore aftrek en hoef nie aan al die vereistes soos hierbo uiteengesit, te voldoen nie.

Dit is duidelik uit die bogenoemde dat werknemers wat van die huis af werk, deeglik moet oorweeg of hulle aan al die vereistes voldoen ten einde die uitgawes vir tuiskantore te eis.

[1] No.58 van 1962

Hierdie artikel is ʼn algemene inligtingsblad en moet nie as professionele advies beskou word nie. Geen verantwoordelikheid word aanvaar vir enige foute, verlies of skade wat ondervind word as gevolg  van die gebruik van enige inligting vervat in hierdie artikel nie. Kontak altyd ʼn finansiële raadgewer vir spesifieke en gedetailleerde advies. (E&OE)

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The different VAT supplies

There are a few instances where VAT is not charged at the standard rate of 15%. In the following newsletter, we distinguished between the different supplies that attract VAT but does not necessarily have the impact of a standard rate supply.

  1. Denied Supplies
  2. The VAT Act provides for certain expenses where input VAT is denied, even if the expense is incurred in the course of conducting an enterprise and if there are no input VAT consequences there will ultimately be no output VAT consequences. The following circumstances are common instances where input VAT will be denied:

    • Acquisitions of a motor vehicle:
    • When a motor vehicle is purchased by a vendor, who is not a motor car dealer or car rental enterprise, the input VAT on the purchase will be considered a denied supply.

      The definition of “motor vehicle” includes all vehicles designed primarily for the purposes of carrying passengers. This definition covers ordinary sedans, hatchbacks, multi-purpose vehicles and double cab bakkies. A single cab bakkie or a bus designed to carry more than 16 persons will qualify for input VAT purposes.  Any repairs and maintenance to vehicles, irrespective of the type of vehicle, will also qualify for the claiming of input VAT, as long as the cost is separately identified and invoiced.

    • Fees and Club Subscriptions:
    • Input tax in terms of subscriptions/membership fees to sport, social, recreational and private clubs are denied supplies. Input VAT may, however, be deducted on subscriptions to magazines and trade journals which are related in a direct manner to the nature of the enterprise carried on by the vendor.

      However, fees for membership of professional bodies and trade organisations paid on behalf of employees are not denied supplies and SARS allows an input VAT to be claimed. Trade unions are exempt in this regard.

    In the case of denied supplies, no VAT may be claimed, and no output VAT needs to be declared, thus these supplies don’t need to be declared on your VAT return.

  3. Zero-Rated Supplies
  4. A zero-rated supply is a taxable supply, but VAT is levied at 0%. Vendors who make zero-rated supplies are still able to deduct input tax on goods or services acquired in making of the zero-rated supplies.

    Zero-rated supplies include certain basic foodstuffs such as brown bread and maize meal, certain services supplied to non-residents, international transport services, municipal property rates and more.

    Although a zero-rate supply is levied at 0%, it is still a taxable supply and should be declared separately on the VAT return.

  5. Deemed Supplies
  6. A vendor may be required to declare an amount of output tax even though they have not actually supplied any goods or services. Deemed supplies will generally attract VAT at either standard rate or zero rate.

    Two common examples of deemed supplies at standard rate are trading stock taken out of the business for private use and certain fringe benefits received provided to employees.

    The deemed supply will be declared on the VAT return under either your standard rate or zero-rate codes.

  7. Notional input VAT 
  8. A VAT vendor may in certain circumstances deduct a notional input VAT credit in respect of secondhand goods acquired from non-vendors where no VAT is actually payable to the supplier.  Second-hand goods exclude animals, certain mineral rights and goods containing gold or consisting solely of gold.

    The following requirements must all be met for a notional input credit to be deductible in respect of secondhand goods:

    • Goods must be previously owned and used (as per the second-hand good definition in section 1 of the Act) and
    • Goods must be used to generate taxable supplies and
    • The seller must be a resident non-vendor and
    • Goods must be located in South Africa and
    • There must be no actual VAT levied on the transaction.

     
    It is important to keep all the documentation for all types of supplies for VAT purposes and to have it available as SARS may require it to confirm VAT transactions.

    This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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