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VAT: PART 1

LECTURE EXAMPLES
Prepared by Roulon du Toit CA (SA)

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1. VAT – BASIC EXAMPLES

EXAMPLE 1.1
A Ltd is not a VAT vendor. A Ltd sells goods to B Ltd at a cost of R10 000. B Ltd is not a VAT vendor.
REQUIRED
You are required to calculate the total Output Tax and Input Tax for both A Ltd and B Ltd.

A Ltd Invoice B Ltd

Goods (ex VAT) 10 000


VAT (no VAT as A (Pty) Ltd not a vendor) 0
Total 10 000

SUGGESTED SOLUTION
DESCRIPTION CALCULATION/EXPLANATION R
A LTD
OUTPUT TAX
Sale of goods No Output Tax as A Ltd is not a vendor 0

B LTD
INPUT TAX
B Ltd cannot claim any Input Tax as:
- B Ltd is not a VAT vendor
Purchase of goods - There is no VAT on the invoice 0

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EXAMPLE 1.2
A Ltd is a registered VAT vendor. A Ltd sells goods to B Ltd at a cost of R10 000 (ex VAT). B Ltd is not
a VAT vendor.
REQUIRED
You are required to calculate the total Output Tax and Input Tax for both A Ltd and B Ltd.

A Ltd Invoice B Ltd

Goods (ex VAT) 10 000


VAT (14%) 1 400
Total 11 400

SUGGESTED SOLUTION
DESCRIPTION CALCULATION/EXPLANATION R
A LTD
OUTPUT TAX
Can be calculated as:
- 10 000 x 14% or
Sale of goods - 11 400 x 14/114 1 400

B LTD
INPUT TAX
B Ltd cannot claim any Input Tax as:
Purchase of goods - B Ltd is not a VAT vendor 0

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EXAMPLE 1.3
A Ltd is a registered VAT vendor. A Ltd sells goods to B Ltd at a cost of R10 000 (ex VAT). B Ltd is not
a VAT vendor. The goods sold by A Ltd is considered a zero-rated supply.
REQUIRED
You are required to calculate the total Output Tax and Input Tax for both A Ltd and B Ltd.

A Ltd Invoice B Ltd

Goods (ex VAT) 10 000


VAT (0%) 0
Total 10 000

SUGGESTED SOLUTION
DESCRIPTION CALCULATION/EXPLANATION R
A LTD
OUTPUT TAX
Can be calculated as:
- 10 000 x 0% or
Sale of goods - 10 000 x 0/100 0

B LTD
INPUT TAX
B Ltd cannot claim any Input Tax as:
Purchase of goods - B Ltd is not a VAT vendor 0

Please note that there is VAT on the invoice. It


has just been calculated at 0% instead of the
NOTE: usual 14%

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EXAMPLE 1.4
A Ltd is a registered VAT vendor. A Ltd sells goods to B Ltd at a cost of R10 000 (ex VAT). B Ltd is not
a VAT vendor. The goods sold by A Ltd is considered an exempt supply.
REQUIRED
You are required to calculate the total Output Tax and Input Tax for both A Ltd and B Ltd.

A Ltd Invoice B Ltd

Goods (ex VAT) 10 000


VAT (exempt) 0
Total 10 000

SUGGESTED SOLUTION
DESCRIPTION CALCULATION/EXPLANATION R
A LTD
OUTPUT TAX
Sale of goods No VAT as this is an exempt supply 0

B LTD
INPUT TAX
B Ltd cannot claim any Input Tax as:
Purchase of goods - B Ltd is not a VAT vendor 0

Although there is also Rnil VAT in this example,


it is different from Lecture Example 1.3. In
Lecture Example 1.3 the VAT was calculated
using 0%. Here there simply is no VAT
NOTE: calculated at all as it is exempt.

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EXAMPLE 1.5
A Ltd is not a VAT vendor. A Ltd sells goods to B Ltd at a cost of R10 000 (ex VAT). B Ltd is a
registered VAT vendor.
REQUIRED
You are required to calculate the total Output Tax and Input Tax for both A Ltd and B Ltd.

A Ltd Invoice B Ltd

Goods (ex VAT) 10 000


VAT (no VAT as A Ltd is not a vendor) 0
Total 10 000

SUGGESTED SOLUTION
DESCRIPTION CALCULATION/EXPLANATION R
A LTD
OUTPUT TAX
Sale of goods No VAT as A Ltd is not a VAT vendor 0

B LTD
INPUT TAX
B Ltd cannot claim any Input Tax as:
Purchase of goods - There is no VAT on the invoice 0

NOTE: In this case B Ltd is a VAT vendor and would be


able to claim Input Tax. However, B Ltd must
have a valid VAT invoice in order to claim the
VAT. As there was no output raised by A Ltd on
the invoice, B Ltd cannot claim any VAT.

There is one possible exception to this rule—


second hand goods acquired from a non-
vendor. We will cover that later.

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EXAMPLE 1.6
A Ltd is a registered VAT vendor. A Ltd sells goods to B Ltd at a cost of R10 000 (ex VAT). B Ltd is a
registered VAT vendor.
REQUIRED
You are required to calculate the total Output Tax and Input Tax for both A Ltd and B Ltd.

A Ltd Invoice B Ltd

Goods (ex VAT) 10 000


VAT (14%) 1 400
Total 11 400

SUGGESTED SOLUTION
DESCRIPTION CALCULATION/EXPLANATION R
A LTD
OUTPUT TAX
Can be calculated as:
- 10 000 x 14% or
Sale of goods - 11 400 x 14/114 1 400

B LTD
INPUT TAX

Purchase of goods B Ltd claims the Input Tax that is on the invoice. 1 400

Note: The Input Tax could also be calculated as:


- 10 000 x 14%
- 11 400 x 14/114

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EXAMPLE 1.7
A Ltd is a registered VAT vendor. A Ltd sells goods to B Ltd at a cost of R10 000 (ex VAT). B Ltd is a
registered VAT vendor. The goods sold by A Ltd is considered a zero-rated supply.
REQUIRED
You are required to calculate the total Output Tax and Input Tax for both A Ltd and B Ltd.

A Ltd Invoice B Ltd

Goods (ex VAT) 10 000


VAT (0%) 0
Total 10 000

SUGGESTED SOLUTION
DESCRIPTION CALCULATION/EXPLANATION R
A LTD
OUTPUT TAX
Can be calculated as:
- 10 000 x 0% or
Sale of goods - 10 000 x 0/100 0

B LTD
INPUT TAX

Purchase of goods B Ltd claims the Input Tax that is on the invoice. 0

There is VAT on the invoice. It is Rnil. B Ltd thus


claims Rnil VAT. This is NOT the same as an
NOTE: exempt supply where there is NO VAT calculated.

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EXAMPLE 1.8
A Ltd is a registered VAT vendor. A Ltd sells goods to B Ltd at a cost of R10 000 (ex VAT). B Ltd is a
registered VAT vendor. The goods sold by A Ltd is considered an exempt supply.
REQUIRED
You are required to calculate the total Output Tax and Input Tax for both A Ltd and B Ltd.

A Ltd Invoice B Ltd

Goods (ex VAT) 10 000


VAT (exempt) 0
Total 10 000

SUGGESTED SOLUTION
DESCRIPTION CALCULATION/EXPLANATION R
A LTD
OUTPUT TAX

Sale of goods No VAT as this is an exempt supply. 0

B LTD
INPUT TAX
B Ltd claims the Input Tax that is on the invoice.
However, there is no VAT on the invoice as it is an
Purchase of goods exempt supply. 0

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2. VAT VENDOR REGISTRATION

NOTE: To determine if a person is required to register as a VAT vendor, the following is important:
- Is the person carrying on an enterprise
- Did the taxable supplies (standard rated and zero-rated) reach the levels prescribed in s23?

EXAMPLE 2.1
Mr X has just accepted a new position as a Chief Financial Officer (CFO) for a listed company.
Previously he was earning a salary of R850 000 per annum. In the new position he will earn a salary
of R1 100 000 per annum.

REQUIRED
Mr X is concerned that the increased salary means he would have to register as a VAT vendor. You
are required to inform Mr X if he is required to register as a VAT vendor.

SUGGESTED SOLUTION
In order to register as a VAT vendor, a person must be carrying on an enterprise and meet the
thresholds noted in s23.
Mr X will be earning a salary. According to the definition of an “enterprise” in s1 of the Act, the
rendering of services by a person to an employer will not be considered the carrying of an
enterprise. Therefore, Mr X is not carrying on an enterprise and will not be required to register as a
VAT vendor, regardless of the fact that he earns more than R1million per annum.

EXAMPLE 2.2
Mr Y collects superhero and movie action figures. He has an extensive collection with some rare
pieces. A wealthy collector has approached him with an offer to purchase a very rare figurine for
R1.2million.

REQUIRED
Will be Mr Y be required to register as a VAT vendor?

SUGGESTED SOLUTION
In order to register as a VAT vendor, a person must be carrying on an enterprise and meet the
thresholds noted in s23.
According to definition of an ‘enterprise’ in s1, paragraph (iv) of the proviso, a person’s hobbies will
not be considered an enterprise. The sale of the figurine relates to Mr Y’s hobby. Even though the
earnings for the year will exceed R1million, it is not due to the carrying on of an enterprise and Mr Y
will not be required to register as a VAT vendor.

EXAMPLE 2.3
Mrs Y inherited a fabric printer from her father when he passed away three years ago. She started a
business where she will print designs onto T-shirts. People can bring her photos or sketches and she
will print it onto a T-shirt.
In the current year she has generated an income of R700 000 from the sale of these printed T-shirts.
In the last month of the year, she decided that it was time to purchase a better printer. She sold the
old printer for R400 000.
Mrs Y is concerned as the total amount earned from the business this year is R1 100 000 (R700 000 +
R400 000) and she does not want to be a VAT vendor.

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REQUIRED
You are required to inform Mrs Y if she will be required to register as a VAT vendor.

SUGGESTED SOLUTION
In order to register as a VAT vendor, a person must be carrying on an enterprise and meet the
thresholds noted in s23.
In this case, Mrs Y is carrying on an “enterprise” (defined in s1) as she is regularly and continuously
supplying goods to persons for a consideration. We should thus consider whether she is required to
register as a VAT vendor in terms of s23.
In terms of s23, a person should register as a VAT vendor if the value of the taxable supplies exceed
R1million. In this case her taxable supplies amounts to R1 100 000. However, I terms of the proviso
in s23, any abnormal circumstances or the replacement of any plant or capital asset shall not be
taken into account in determining if the R1million has been reached. This means that only the
R700 000 is considered. As this is less than R1million, Mrs Y is not obliged to register as a VAT
vendor.
It should be noted that Mrs Y can still elect to register as a VAT vendor as the value of her taxable
supplies exceeded R50 000.

EXAMPLE 2.4
B Ltd’s business makes different categories of supplies. B Ltd wishes to know if it is required to
register as a VAT vendor.
B Ltd has indicated that it has made the following supplies during the last 12 months.
Standard supplies 600 000
Zero-rated supplies 300 000
Exempt supplies 400 000
1 300 000

REQUIRED
You are required to inform B Ltd if it would be required to register as a VAT vendor.

SUGGESTED SOLUTION
In order to register as a VAT vendor, a person must be carrying on an enterprise and meet the
thresholds noted in s23.
Per the definition of ‘enterprise’ in s1, the making of exempt supplies is not considered the carrying
on of an enterprise. Therefore, the exempt supplies of R400 000 cannot be considered.
As the taxable supplies (standard rated supplies and zero-rated supplies) amount to R900 000
(R600 000 + R300 000), B Ltd is not required to register as a VAT vendor.
B Ltd can still voluntary register as a VAT vendor as its taxable supplies exceed R50 000.

EXAMPLE 2.5
D Co Ltd is a foreign company that hosts a virtual store where persons from all over the world can
purchase applications (“apps”) for use on their tablets and smartphones.
D Co Ltd is not a South African resident.
South African residents purchased R63 000 worth of apps from D Co Ltd’s online store and paid
from South African bank accounts.

REQUIRED
Indicate to D Co Ltd if it is required to register as a VAT vendor.

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SUGGESTED SOLUTION
In order to register as a VAT vendor, a person must be carrying on an enterprise and meet the
thresholds in s23.
The supply of electronic services by a person from a place in an export country to a recipient that
is a resident in the Republic is specifically indicated as being the carrying on of an enterprise.
(Paragraph (b)(vi) of the definition of an “enterprise” in s1)
In terms of s23(1A), D Co Ltd will be required to register as a VAT vendor as the value of the
taxable supplies in terms of paragraph (b)(vi) of the definition of enterprise exceeded R50 000.
D Co Ltd will thus be required to register as a VAT vendor and would have to account for Output
Tax on the supply of the apps to SA residents.

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3. ACCOUNTING BASIS
EXAMPLE 3.1
Mr A is a registered VAT vendor. Mr A sells goods to a customer on credit for R22 800 (incl VAT)
on 1 December 20x4. The customer pays the outstanding amount on 1 April 20x5.
Mr A is a Category A VAT vendor with VAT two month VAT periods that end on the last day of
January, March, May, July, September and November (see s27 of VAT Act).

REQUIRED
Indicate when the VAT needs to be accounted for and the VAT return that it will be included in if
a) Mr A is registered on the invoice basis
b) Mr A is registered on the payments basis

SUGGESTED SOLUTION
a)
As Mr A is registered on the invoice basis, the VAT must be accounted for on the earlier of the
invoice or payment date (s15 and s9). In this case the invoice is issued when the sale takes place
(1 December 20x4) and it is paid on 1 April 20x5.
The earlier is thus 1 December 20x4. This is the month in which to account for the VAT.

As Mr A is a Category A vendor, December falls in the two month period ending January.
Therefore, the Output Tax should be included in the VAT return for January 20x5.

The VAT will be: R22 800 x 14/114 = R2 800

b)
As Mr A is registered on the payments basis, the VAT must be accounted for when the payment
takes place.
The customer pays on 1 April 20x5 and thus the VAT is accounted for at that time.

As Mr A is a Category A vendor, April falls in the two month period ending May. Therefore, the
Output Tax should be included in the VAT return for May 20x5.

The VAT will be: R22 800 x 14/114 = R2 800

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4. EXEMPT SUPPLIES
EXAMPLE 4.1
A Ltd is in the transport business. It transported Mr D on a bus from Johannesburg to Cape Town
and charged Mr D R1 500 (ex VAT) for the trip.

REQUIRED
Discuss the VAT consequences for:
a) A Ltd. A Ltd is a registered VAT vendor.
b) Mr D. You may assume that Mr D is a registered VAT vendor and that the trip was for
business purposes.
c) What would happen if A Ltd charged Mr D R500 (ex VAT) to transport Mr D’s luggage. This
is charged for separately from the R1 500 on a separate invoice.

SUGGESTED SOLUTION
a)
A Ltd will not charge VAT on the supply as this is the transport of fare-paying passengers by road.
It is exempt in terms of s12(g).
There is thus no VAT.

b)
As A Ltd does not charge VAT on the trip, Mr D cannot claim any Input Tax as it is an exempt
supply. It is important to note that Mr D is incurring the expenditure in the furtherance of an
enterprise but that this does not matter as the invoice does not have VAT on it.

c)
A Ltd:
The cost to transport Mr D for R1 500 would still be exempt as it is the transport of fare-paying
passengers by road.
The transport of the luggage is NOT the transport of a passenger and will, therefore, be subject to
VAT.
A Ltd will have to raise Output Tax of R500 x 14% = R70.
The total amount invoiced to Mr D will thus be R1 500 + R500 + R70 = R2 070

Mr D:
Mr D cannot claim any Input Tax on the ticket (R1 500) as it is an exempt supply.
Mr D would be able to claim the Input Tax on the transport of the goods. Mr D would thus claim
R70.

EXAMPLE 4.2
X Ltd owns a building with different rooms that could be let out either as apartments or as shops.
X Ltd is a registered VAT vendor.
X Ltd purchases a computer at a cost of R22 800 (incl VAT).

REQUIRED
You are required to inform X Ltd about whether it would be able to claim Input Tax on the
computer purchased if:
a) The building is let out as commercial accommodation
b) The building is let out as residential accommodation

SUGGESTED SOLUTION
a)

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The supply of commercial accommodation is a taxable supply and is subject to VAT.


As X Ltd purchased the computer for use in the furtherance of its enterprise, the Input Tax may be
claimed.
The Input Tax that will be claimed is the amount stated on the invoice. This would be R22 800 x
14/114 = R2 800.

b)
The supply of residential accommodation is an exempt supply in terms of s12(c). Making exempt
supplies is not an enterprise as defined in s1.
As the computer was purchased not for the use in an enterprise, X Ltd will not be able to claim
any Input Tax.
It is important to note that there is VAT on the invoice but that X Ltd cannot claim it in this case as
it will be using the computer to make exempt supplies (which means not an enterprise).

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5. ZERO-RATED SUPPLIES
EXAMPLE 5.1
X Ltd manufactures brown bread that it distributes throughout South Africa.
X Ltd is a registered VAT vendor.
During the current VAT period, X Ltd had the following transactions:
- Sold brown bread for a total selling price of R1 000 000 (ex VAT)
- Purchased a computer for use in the accounting department at a cost of R57 000 (incl
VAT).
- Purchased maize meal to make the bread at a cost of R350 000 (incl VAT)
- Sold its old computers for R21 000 (ex VAT)

REQUIRED
You are required to calculate the net VAT payable to SARS or refundable by SARS.

NOTE: Brown bread and the maize meal are both goods that are zero-rated in terms of s11(1)(j)
and Schedule 2, Part B. You will not be told this in the test, so make sure that you know it.

SUGGESTED SOLUTION
OUTPUT TAX
Sale of brown-bread Zero-rated 0
Sale of old computers 21 000 x 14% 2 940

Total Output Tax 2 940

INPUT TAX
Purchase of maize Zero-rated 0
Purchase of computers 57 000 x 14/114 7 000

Total Input Tax 7 000

Net VAT Output Tax 2 940


Less: Input Tax (7 000)
Amount refundable by SARS (4 060)

NOTE: Make sure that you see that the VAT vendor could still claim Input Tax on the computers
(as there was VAT on the invoice and as it will use the computers in its enterprise).

Also note that it could claim the VAT on the maize-meal that was purchased, but that the amount
on the invoice would be Rnil (refer again to Lecture Example 1.7 if you missed this).

X Ltd will also have to pay Output Tax on the sale of the computers as s7 states that there should
be VAT
- On the supply
- Of goods or services
- By a vendor
- in the carrying on of an enterprise

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6. EXPORTS
EXAMPLE 6.1
X Ltd recently decided to expand its customer base to foreign countries. The management of X Ltd
is uncertain of what the VAT implications would be and has requested your help with the
following three transactions.

X Ltd is a registered VAT vendor.

TRANSACTION 1
X Ltd purchased goods of R50 000 (ex VAT) from one of its suppliers. X Ltd then received an order
on its website and exported the goods to France at a selling price of R80 000 (ex VAT).

TRANSACTION 2
X Ltd purchased goods for R34 000 (incl VAT) from one of its suppliers. A British citizen on tour of
South Africa purchased these goods from X Ltd’s store for R57 000 (incl VAT). The customer
provided X Ltd with the necessary documentation to prove that the goods would be taken to
Britain.

TRANSACTION 3
X Ltd purchased goods for R60 000 (incl VAT) from one of its suppliers. A Canadian resident
entered the store and purchased the goods for R76 000 (incl VAT). The customer did not have any
documents with him related to the export.

REQUIRED
For each of the transactions, calculate both the Input Tax and the Output Tax that is applicable.

SUGGESTED SOLUTION

TRANSACTION 1 R
OUTPUT TAX
Exported goods Zero-rated (s11(1)(a)) 0

INPUT TAX
Purchase of stock 50 000 x 14% 7 000

TRANSACTION 2
OUTPUT TAX
Exported goods Zero-rated (s11(1)(a)) 0

INPUT TAX
Purchase of stock 34 000 x 14/114 4 175

TRANSACTION 3
OUTPUT TAX
Exported goods Not zero-rated as the documents were not provided. 9 333
76 000 x 14/114

INPUT TAX

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Purchase of stock 60 000 x 14/114 7 368

NOTE: In all of the above situations X Ltd could claim the Input
Tax on the purchase of the stock. This is because the sale
of the goods is in the carrying on of an enterprise. It
doesn't matter that the Output Tax is zero-rated in some
instances as it is still a taxable supply.

EXAMPLE 6.2
F Ltd is a company that specialises in providing maintenance and repairs services.
The financial accountant has requested your help with the treatment of VAT for the following
transactions:

TRANSACTION 1
F Ltd went to Uganda when a customer requested them to repair buildings that were damaged in
a fire.
F Ltd purchased material for R800 000 (incl VAT) from South African suppliers to use to repair the
buildings.
F Ltd repaired the buildings and charged the customer R2 500 000 (ex VAT).

TRANSACTION 2
A Zimbabwean customer contacted F Ltd to arrange for a repair of land and buildings. These land
and buildings relate to the South African distribution centre of the customer that is situated in
Johannesburg.
F Ltd purchased materials at a cost of R540 000 (ex VAT) and repaired the buildings at a fee of
R700 000 (ex VAT).

TRANSACTION 3
Mr P is a resident of Botswana. During a visit to South Africa, he dropped his iPad and took it to F
Ltd for repairs. F Ltd repaired the iPad and charged a fee of R400 (ex VAT)

Note that all the South African suppliers from which materials were purchased are registered VAT
vendors.

SUGGESTED SOLUTION
TRANSACTION 1
OUTPUT TAX
Exported services Zero-rated (s11(2)(f)) 0

INPUT TAX
Purchase of materials 800 000 x 14/114 98 246

TRANSACTION 2
OUTPUT TAX

Although the services are rendered to a non-


resident, the building is situated in South Africa.
Therefore, in terms of s11(2)(l)(i), F Ltd may NOT
treat this as a zero-rated supply.
Standard VAT is charged.
Fee for repairs 700 000 x 14% 98 000

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INPUT TAX
Purchase of material 540 000 x 14% 75 600

TRANSACTION 3
OUTPUT TAX
Fee for repairs Although the services was rendered to a non-
resident, the item was movable property that was
situated in South Africa at the time that the repair
took place. Therefore, in terms of s11(2)(l)(ii), F Ltd
is not allowed to treat this as a zero-rated supply.
Standard VAT is charged.
400 x 14% 56

EXAMPLE 6.3

Mr A is a South African resident and is a registered VAT vendor. Mr A carries on a business as a


travel agent, specialising in tours to Cape Town, South Africa.

For each of the scenarios below, indicate whether the vendor is able to zero-rate the supply in
terms of s11(2)(l):

SCENARIO A
In the current VAT period Mrs F (a resident of England) contacts Mr A and asks him to arrange a
tour for her and her family. Mr A accepted the transaction and arranged a tour for Mrs F’s
December holidays. Mr A booked all the accommodation and tourist activities (visits to Table
Mountain, wine tasting, Robben Island tour, etc.) for the Mrs F and charged a fee of R80 000
(excluding VAT). Mrs F was in England at the time that Mr A arranged the tour.

SCENARIO B
Mr X, an American citizen, visited South Africa during the current VAT period. He enjoyed the
beautiful country so much that he decided to extend his holiday by two weeks. He visited Mr A’s
travel agency to book further accommodation and activities. Mr A charged R30 000 (excluding
VAT) for the services he rendered to Mr X.

SUGGESTED SOLUTION

SCENARIO A
Mr A supplied services to a non-resident and we thus consider s11(2)(l).
In this case the non-resident was outside of South Africa at the time that the services were
supplied. Therefore, the supply may be zero-rated in terms of s11(2)(l).

Amount (excl VAT) 80 000


VAT (0%) 0
Total (incl VAT) 80 000

SCENARIO B
Mr A supplied services to a non-resident and thus we consider s11(2)(l).
In this case the non-resident was in South Africa at the time that the services were supplied.
Therefore, the supply may NOT be zero-rated in terms of s11(2)(l). Output tax will be charged at
the standard rate of 14% in terms of s7(1).

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Amount (excl VAT) 30 000


VAT (14%) 4 200
Total (incl VAT) 34 200

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7. ACCOMMODATION
EXAMPLE 7.1
Mr F owns several properties that he lets out to both businesses and individuals.
Mr F is a registered VAT vendor.
Mr F has requested your assistance with the VAT treatment for the transactions listed below.

TRANSACTION 1
Mr F has a small cottage in the back of his garden. He rents this out to a 70 year old woman and
charges her R5 000 per month to stay there.
In the current month he purchased a new bed at a cost of R15 000 (incl VAT) to put in the cottage
for use by the tenant.

TRANSACTION 2
Mr F runs a “bed and breakfast” establishment.
In the current month he earned a total of R40 000 (ex VAT) from the B&B. None of the visitors
stayed in the B&B for longer than 3 days. Mr F also charged an additional R2 000 (ex VAT) to
visitors to use the phone. Mr F’s phone bill for the B&B was R1 500 (incl VAT).
Mr F purchased two beds at a cost of R15 000 (incl VAT) each to put inside the rooms used by
visitors to the B&B.

TRANSACTION 3
One of the visitors to the B&B was a contractor involved in the construction of a new soccer
stadium in Johannesburg. The visitor stayed at the B&B for 30 days.
Mr F charged the customer R35 000 (ex VAT) as an all inclusive rate that included the cost of using
the phone.
Mr F incurred costs relating to this visitor of R14 000 (incl VAT).

REQUIRED
You are required to calculate both the Input Tax and the Output Tax relating to the transactions
above.

SUGGESTED SOLUTION
TRANSACTION 1
OUTPUT TAX
Rent Exempt - residential accommodation (s12(c)) 0

INPUT TAX
Purchase of bed No VAT can be claimed as this relates to an exempt supply 0
and thus does not relate to an enterprise that is being carried
on by Mr F.

NOTE: There was VAT included in the purchase price of the bed. The
sale of the bed by the supplier is not an exempt supply. In
this case Mr F is not allowed to claim the Input Tax as it
relates to an exempt supply and thus NOT the carrying on of
an enterprise.

TRANSACTION 2
OUTPUT TAX
B&B fee 40 000 x 14% 5 600

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Charge for using 2 000 x 14% 280


phone (this is example of ‘domestic goods and services’)

INPUT TAX
Purchase of beds (15 000 x 2) x 14/114 3 684
Phone bill 1 500 x 14/114 184

TRANSACTION 3
OUTPUT TAX
B&B fee 35 000 x 60% x 14% (s10(10)) 2 940
The customer stayed for a period exceeding 28 days and,
therefore, Output Tax is calculated on 60% of the all-inclusive
charge.

INPUT TAX
Costs incurred 14 000 x 14/114 1 719

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8. TRANSPORT
EXAMPLE 8.1
P Ltd is a transport company and is a registered VAT vendor.
P Ltd wishes to know what the VAT implications will be for the following transactions.

TRANSACTION 1
P Ltd purchased a truck at a cost of R1 200 000 (incl VAT) in the current VAT period. It used the
truck to transport goods and charged a total fee of R130 000 (ex VAT). The cost of diesel was
R15 000 (incl VAT).

TRANSACTION 2
P Ltd purchased a 30-seater bus at a cost of R980 000 (incl VAT) in the current VAT period. It used
the truck to transport passengers and charged a total fee of R80 000 (ex VAT). The cost of diesel
was R11 000 (incl VAT).

TRANSACTION 3
P Ltd purchased a 25-seater bus at a cost of R750 000 (incl VAT) in the current VAT period. It will
use the bus to transport its own employees between their homes and work free of charge. The
cost of diesel was R10 000 (incl VAT).

REQUIRED
You are required to calculate the VAT effects of the above transactions for P Ltd.

SUGGESTED SOLUTION
TRANSACTION 1
OUTPUT TAX
Transport of goods 130 000 x 14% 18 200

INPUT TAX
Purchase of truck 1 200 000 x 14/114 147 368
Diesel Zero-rated - s11(1)(h) 0

TRANSACTION 2
OUTPUT TAX
Transport of fare-paying Exempt - s12(g) 0
passengers

INPUT TAX
Purchase of bus As it is used to make exempt supplies, it is not 0
purchased for the carrying on of an enterprise.
Therefore, no VAT may be claimed.

Diesel Used for transport of fare-paying passengers, 0


thus exempt

TRANSACTION 3
OUTPUT TAX
No fees charged

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INPUT TAX
Purchase of bus As the bus is not used for fare-paying 92 105
passengers, it is not for an exempt supply and
the VAT can thus be claimed as it relates to the
carrying on of an enterprise.
750 000 x 14/114
Diesel Zero-rated - s11(1)(h) 0

EXAMPLE 8.2
A Ltd is a registered VAT vendor and operates as a South African tour company.
A Ltd offers two distinct services:
- bus tours to popular wine farms in Cape Town (Tour Type A)
- wildlife safaris in the Kruger National Park using game viewing vehicles (Tour Type B)

Tour Type A
A Ltd charges R2 000 (excl VAT) per person for the wine farm tour. This is broken down as follows:
- R500 for bus transport
- R1 500 for the tour of the wine farm and wine tasting

Tour Type B
A Ltd charges R3 000 (excl VAT) per person for the safari. This is broken down as follows:
- R1 000 for transport in game viewing vehicle
- R2 000 for the guided safari services

A Ltd recently appointed a new financial manager who is uncertain of the VAT implications
relevant to the company.

REQUIRED
For each of the Tour Types, indicate whether output tax will be charged on services rendered.
Further, indicate whether A Ltd will be able to claim input tax should it purchase a new bus for
Tour Type A and a new game viewing vehicle for Tour Type B.

SUGGESTED SOLUTION
Per s7(1)(a) there must be output tax at 14% if:
- There is a supply
- Of services
- By a vendor
- In the furtherance of an Enterprise
Therefore, A Ltd should raise output tax at 14% unless it is zero-rated or exempt from VAT/

Tour Type A
A Ltd must charge output tax at 14% on the R1 500 charged for the tour of the wine farm and
wine tasting as it meets the requirements of s7(1)(a).
A Ltd will thus charge output tax of R1 500 x 14% = R210

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A Ltd will NOT charge output tax on the R500 bus transport as this is the transport of fare-paying
passengers by road and is exempt in terms of s12(g). This means it is not considered part of the
enterprise (see proviso the definition of ‘enterprise’ in s1).

If A Ltd purchases a new bus it will NOT be able to claim the input tax on the bus as the bus is used
for transporting fare-paying passengers by road, which is an exempt supply.

Tour Type B
A Ltd must charge output tax on the R2 000 charged for the safari as it meets the requirements of
s7(1)(a).
A Ltd will thus charge output tax of R2 000 x 14% = R280.

A Ltd will charge output tax on the R1 000 charged for transporting persons on the game viewing
vehicle. This is because game viewing vehicles are specifically excluded from the exemption in
s12(g). This means the transport on the game viewing vehicle is taxable supply and is in the
furtherance of an enterprise.
A Ltd will thus charge output tax of R1 000 x 14% = R140.

If A Ltd purchases a new game viewing vehicle it will be allowed to claim the input tax as it is used
in the furtherance of the enterprise and in making taxable supplies.

EXAMPLE 8.3
For the following transactions, indicate what the VAT implications will be.

TRANSACTION 1
SAA charges a passenger R1 000 (ex VAT) for a flight from Johannesburg to Cape Town.

TRANSACTION 2
SAA charges R5 000 (ex VAT) to transport goods from Cape Town to Johannesburg.

TRANSACTION 3
SAA charges R10 000 (ex VAT) to transport passengers from Johannesburg to London.

TRANSACTION 4
SAA charges R15 000 to fly a passenger from Cape Town to London. The plane flies from Cape
Town to Johannesburg and lands at O.R. Tambo to pick up luggage before flying to London. This
was not billed as separate flights.

SUGGESTED SOLUTION
TRANSACTION 1
As this is not an international flight, VAT will be charged at 14%. The VAT on the flight will thus be
R1 000 x 14% = R140

TRANSACTION 2
As this is not an international flight, VAT will be charged at 14%. The VAT on the transport of the
goods will thus be R5 000 x 14% = R700

TRANSACTION 3
As this is international transport, it will be zero-rated in terms of s11(2)(a)(ii).
The VAT charged on the flight will thus be R10 000 x 0% = Rnil.

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The total charge is thus R10 000 + Rnil = R10 000.

TRANSACTION 4
Although there is a local flight, it forms part of the international trip. Therefore, in terms of
s11(2)(b), the flight will be zero rated. The VAT charged on the flight is thus R15 000 x 0% = Rnil.
The total charge is thus R15 000 + Rnil = R15 000.

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9. IMPORTS
EXAMPLE 9.1
Y Ltd imported air-conditioners from the USA.
The air-conditioners cost R100 000. The customs duty value assigned to the air-conditioners were
R95 000. Import duties of R20 000 were payable in respect of these air-conditioners.
Y Ltd is a registered VAT vendor.

REQUIRED
You are required to calculate the Input Tax and the Output Tax relating to the above import if:
a) Y Ltd will use the air-conditioners for residential accommodation
b) Y Ltd will use the air-conditioners for commercial accommodation
c) Y Ltd will use the air-conditioners 20% of the time for residential accommodation and 80%
of the time for commercial accommodation

SUGGESTED SOLUTION
Please remember that supplying residential accommodation is considered an exempt supply.
a)
OUTPUT TAX CALCULATION/EXPLANATION R
Import Customs duty value 95 000
+ 10% of customs duty value 9 500
+ import duties 20 000
124 500
x 14%
17 430 17 430

INPUT TAX
Import - aircons As this will be used for the purposes of 0
making an exempt supply, this is not in
the carrying on of an enterprise and
there is no Input Tax that may be
claimed

NOTE: The cost to the taxpayer is NOT used for the calculation of Output Tax. When you are
performing income tax capital allowances, you will consider the cost and not the customs duty
value.

b)
OUTPUT TAX CALCULATION/EXPLANATION R
Import Customs duty value 95 000
+ 10% of customs duty value 9 500
+ import duties 20 000
124 500
x 14%
17 430 17 430

INPUT TAX

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Used to make taxable supply, thus claim


Import - aircons the VAT 17 430

NOTE: As the vendor will use the air-cons to make taxable supplies, the Input Tax may be claimed.
Note that the Output Tax and the Input Tax result in a Rnil net effect.

c)
OUTPUT TAX CALCULATION/EXPLANATION R
Import Customs duty value 95 000
+ 10% of customs duty value 9 500
+ import duties 20 000
124 500
x 14%
17 430 17 430

INPUT TAX
Import - aircons As the taxpayer only makes 80% taxable 13 944
supplies, only 80% of the Input Tax may
be claimed:
17 430 x 80%

NOTE: This is a basic example of a VAT apportionment. A person may only claim the Input Tax that
relates to the making of taxable supplies (i.e. the carrying on of an enterprise).
Remember! Making exempt supplies is NOT the carrying on of an enterprise.

EXAMPLE 9.2
U Ltd imported goods from Botswana.
The cost of the goods was R200 000. The customs duty value was R180 000. As the goods were
imported from Botswana, there are no import duties levied.

REQUIRED
You are required to calculate the Output Tax and the Input Tax if
a) U Ltd will use the goods to make taxable supplies
b) U Ltd will use the goods to make exempt supplies

SUGGESTED SOLUTION
a)
OUTPUT TAX CALCULATION/EXPLANATION R
Import 180 000 x 14% 25 200

INPUT TAX
Import As the goods will be used for making taxable supplies, 25 200
Input Tax may be claimed

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b)
OUTPUT TAX CALCULATION/EXPLANATION R
Import 180 000 x 14% 25 200

INPUT TAX
Used for exempt supplies, thus no Input Tax may be
Import claimed 0

EXAMPLE 9.3
Q Ltd has specialized computer systems that it uses for its business. Some of these computer
systems were starting to produce errors and Q Ltd had to contact the foreign manufacturer to
send out a service technician to South Africa to repair these systems.
The foreign service technician provided Q Ltd with an invoice in US Dollars that amounted to
R130 000 for the repair of the computer systems.
Q Ltd is a registered VAT vendor.

REQUIRED
You are required to determine the Output Tax and the Input Tax relating to the above transaction
if
a) Q Ltd uses the computer systems to make taxable supplies
b) Q Ltd uses the computer systems to make exempt supplies
c) Q Ltd uses the computer systems to make 70% taxable supplies and 30% exempt supplies

SUGGESTED SOLUTION
There is no Input Tax calculated on imported services. This is due to the fact that only Output Tax
is calculated on the portion that does not relate to taxable supplies.

a)
OUTPUT TAX R

Imported services Used 100% for taxable supplies, thus no Output Tax 0

b)
OUTPUT TAX R
Imported services 130 000 x 14% x 100% 18 200

NOTE: As the services were used 100% in respect of exempt supplies, Output Tax is paid on 100%
of the value.

c)
OUTPUT TAX R
Imported services 130 000 x 14% x 30% 5 460

NOTE: As it was used 30% of the time to make exempt supplies, Output Tax is calculated at
30%.

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10. 2ND HAND GOODS


EXAMPLE 10.1
Consider each of the transactions below and answer the specific questions posed.

TRANSACTION 1
X Ltd is a registered VAT vendor. X Ltd is currently busy completing the VAT return for November
20x6.
On 1 November 20x6, X Ltd purchased new goods from a registered VAT vendor at a cost of
R57 000 (incl VAT).
On 15 November 20x6, X Ltd purchased new goods from a supplier that is NOT a registered VAT
vendor. The goods cost X Ltd R114 000.

Calculate the Input Tax on the transactions above.

TRANSACTION 2
Y Ltd is a registered VAT vendor. Y Ltd is currently busy completing the VAT return for December
20x6.
On 1 December 20x6, Y Ltd purchased second-hand goods from a registered VAT vendor for an
amount of R114 000, including VAT.
On 20 December 20x6, Y Ltd purchased second-hand goods from a supplier that is NOT a
registered VAT vendor. The goods cost X Ltd R300 000 and X Ltd paid it in full immediately.

Calculate the Input Tax on the transactions above.

TRANSACTION 3
Z Ltd is a registered Category C VAT vendor (submits monthly VAT returns).
Z Ltd purchased second-hand goods from registered VAT vendor (SUPPLIER A) on 1 November
20x6. The goods cost a total of R60 000 (incl VAT) and is payable in two instalments: R30 000 on 1
November 20x6 and R30 000 on 1 December 20x6.

Z Ltd purchased second-hand goods from a supplier that is NOT a registered VAT vendor
(SUPPLIER B) on 1 November 20x6. The goods cost a total of R100 000 and is payable in two
instalments: R30 000 on 1 November 20x6 and R70 000 on 1 December 20x6.

Calculate the Input Tax on the transactions above for both November and December.

TRANSACTION 4
A Ltd purchases goods from a non-vendor. The goods were owned by the non-vendor but has not
yet been used. A Ltd pay R50 000 for the goods. A Ltd is a registered vendor.

Calculate the Input Tax on the above transaction.

SUGGESTED SOLUTION
TRANSACTION 1
INPUT TAX
Goods purchased:
- 1 November 57 000 x 14/114 7 000
- 15 November As the goods were purchased from a non-vendor, there is 0
no VAT invoice. X Ltd can thus not claim any Input Tax on
the purchase. Note, there is no notional Input Tax as the
goods are new and thus NOT second hand goods.

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TRANSACTION 2
INPUT TAX
Goods purchased:
- 1 December 114 000 x 14/114 14 000
- 20 December Notional Input Tax may be claimed as this is 2nd hand 36 842
goods purchased from a non-vendor.
300 000 x 14/114

TRANSACTION 3
INPUT TAX
NOVEMBER
Supplier A 60 000 x 14/114 7 368
Supplier B Notional Input Tax may be claimed as this is 2nd hand
goods purchased from a non-vendor.
Note that notional Input Tax may only be claimed on the
amount that has been paid (s16(3)(a)(ii)(aa))
30 000 x 14/114 3 684
DECEMBER
Supplier A Full amount was claimed in November
Supplier B 70 000 x 14/114 8 596

NOTE: The goods purchased from Supplier A are treated as normal. Thus the VAT is claimed on
the earlier of invoice or payment (s9). The full VAT is thus claimed in November when the invoice
is obtained. This is because the goods from Supplier A were obtained from a registered vendor. It
does not matter that the goods are second-hand.
The goods from Supplier B represent second-hand goods obtained from a non-vendor. Therefore,
the treatment is different. VAT can only be claimed to the extent that payment has been made.
Thus in November VAT can only be claimed on the R30 000 that has been paid and in December
the VAT can be claimed on the R70 000 as this is when it is paid.

TRANSACTION 4
The goods purchased from the non-vendor are not “second-hand goods” as defined as the goods
have not been used.
As this thus not considered second-hand goods, A Ltd cannot claim any Input Tax as the goods
were purchased from a non-vendor that did not provide A Ltd with a valid VAT invoice.

EXAMPLE 10.2
T Ltd is a registered VAT vendor and exporting goods to foreign countries forms a significant part
of T Ltd’s business.

GOODS A
T Ltd purchased goods from a registered VAT vendor at a cost of R57 000 (incl VAT). T Ltd then
sold these goods to customers in Britain for R90 000 (incl VAT).

GOODS B
T Ltd purchased second hand goods from a registered VAT vendor at a cost of R80 000 (incl VAT).
T Ltd then sold these goods to customers in Algeria for R130 000 (incl VAT).

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GOODS C
T Ltd purchased second-hand goods from a supplier that is not a registered VAT vendor. T Ltd paid
R60 000 for the goods. T Ltd then exported the goods to Angola for R90 000 (ex VAT).

REQUIRED
Calculate the Input Tax and the Output Tax pertaining to the above transactions.

SUGGESTED SOLUTION
INPUT TAX R
Goods A 57 000 x 14/114 7 000
Goods B 80 000 x 14/114 9 825
Goods C 2nd hand goods from a non-vendor, thus claim notional 7 368
Input Tax.
60 000 x 14/114

OUTPUT TAX
Goods A Zero-rated - s11(1)(a) 0
Goods B Zero-rated - s11(1)(a) 0
Goods C As the vendor claimed notional Input Tax when purchased, 7 368
Output Tax must be calculated in terms of s10(12).
Treated as if sold at COST: 60 000 x 14/114

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11. APPORTIONMENT
EXAMPLE 11.1
For the scenarios below, indicate what % Input Tax may be claimed.

SCENARIO 1
Q Ltd’s business makes both taxable and exempt supplies. Q Ltd is a registered VAT vendor.
Q Ltd purchased a computer at a cost of R22 800 (incl VAT). The computer will be used 70% to
make taxable supplies and 30% to make exempt supplies.

SCENARIO 2
W Ltd rents out both commercial and fully-furnished residential properties.
W Ltd purchased 10 beds at a cost of R100 000 (incl VAT) to place in the units that are let out as
residential accommodation.
W Ltd purchased 10 chairs at a cost of R80 000 (incl VAT) that will be used in the commercial
accommodation business.
W Ltd had the air-conditioning system repaired in a building that is used for both residential and
commercial accommodation. The cost of the repairs were R50 000 (incl VAT). 60% of the business
relates to residential accommodation and 40% relates to commercial accommodation.

SCENARIO 3
E Ltd produces both brown bread (zero-rated) and potato chips. 70% of E Ltd’s turnover is
attributable to the supply of brown bread and 30% to the supply of potato chips.
E Ltd purchased a new packing machine for the brown bread line at a cost of R250 000 (incl VAT).
E Ltd purchased new overalls for the factory workers working on the potato chips line at a cost of
R130 000 (incl VAT).
E Ltd purchased a new air-conditioner that services both the brown bread and the potato chips
plant. The total cost is R400 000 (incl VAT).
E Ltd is a registered VAT vendor.

SCENARIO 4
R Ltd is a registered VAT vendor that makes both exempt and taxable supplies. Using the
turnover-method of determining apportionment, R Ltd is considered an 80% vendor (i.e. 80% of
the supplies are taxable and 20% is exempt).
R Ltd purchased two vehicles in the current VAT period:
- Vehicle A is a BMW that was purchased for use by persons in the exempt business. It is a
pool car (which means that it is not a company car for a specific employee). The car cost
R400 000 (incl VAT).
- Vehicle B is a Mercedes Benz that was purchased for use by persons in the taxable
business. It is also a pool car. It cost R350 000 (incl VAT).

SUGGESTED SOLUTION
SCENARIO 1 R
INPUT TAX
Computer purchased 22 800 x 14/114 x 70% 1 960

SCENARIO 2
INPUT TAX
Bed purchased Purchased for exempt residential accommodation
(s12(c)), thus no Input Tax claimed.
0

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Chairs purchased Purchased for use 100% by taxable business.


80 000 x 14/114
9 825
Air-conditioning repairs Must be apportioned as used for both taxable and
exempt supplies.
50 000 x 14/114 x 40% 2 456

SCENARIO 3
INPUT TAX
New packing machine for
brown bread 250 000 x 14/114 30 702
Overalls for workers 130 000 x 14/114 15 965
Air-conditioner 400 000 x 14/114 49 123

Zero-rated and standard rated are both taxable


NOTE: supplies. We only apportion for exempt supplies.

SCENARIO 4
INPUT TAX
Vehicle A Input Tax denied - Motor Car (s17(2)) 0
Vehicle B Input Tax denied - Motor Car (s17(2)) 0

NOTE: Remember the normal rules still applies!

EXAMPLE 11.2
T Ltd supplies both commercial and residential accommodation. It runs its business out of a
building that is situated in Sandton, Johannesburg.
Using the turnover-based method of calculating apportionment, T Ltd has determined that 70% of
its business pertains to the supply of commercial accommodation. T Ltd is thus a 70% vendor.
The information below relates to the current VAT period.
All amounts include VAT, where applicable.
INCOME
Rental income:
- residential accommodation 400 000
- commercial accommodation 933 333

COSTS/EXPENSES/OUTFLOWS
Repairs to residential accommodation units 120 000
Repairs to commercial accommodation units 210 000
Water and electricity 70 000
Computers for use by accounting department 57 000
Stationery to print invoices to residential accommodation units 5 000

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REQUIRED
You are required to calculate the net VAT payable to or refundable by SARS.

SUGGESTED SOLUTION
OUTPUT TAX
Rental income
- residential accommodation Exempt supply (s12(c)) 0
- commercial accommodation 933 333 x 14/114 114 620

TOTAL OUTPUT TAX 114 620


INPUT TAX
Repairs to residential units Relates to exempt supply, thus no Input 0
Tax can be claimed
Repairs to commercial accommodation 210 000 x 14/114 25 789
units
Water and electricity 70 000 x 14/114 x 70% 6 018
Computers for use by accounting 57 000 x 14/114 x 70% 4 900
department
Stationery for residential Relates to exempt supply, thus no Input 0
accommodation Tax can be claimed

TOTAL INPUT TAX 36 707

Total Output Tax 114 620


Total Input Tax (36 707)
Amount due to SARS 77 913

NOTE 1: Please note that the Output Tax on the rental income is NOT apportioned. The only time
we apportion Output Tax is for:
- Indemnity awards
- Fringe benefits
- Change in use

NOTE 2: The water and electricity and computers were apportioned by 70%. This is due to the fact
that the question does not specify for which business it will be used. Therefore, we assume that it
will be used for both the taxable and the exempt business. As only 70% of the business is taxable,
only 70% of the Input Tax can be claimed.

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12. ENTERTAINMENT
EXAMPLE 12.1
Refer to the following list of items:
1. Food for staff members
2. A meal purchased for a client during a business meeting
3. A microwave purchased for the staff canteen
4. A fruit basket purchased as a gift to give to clients at the end of the year
5. A water cooler placed in the reception area so that waiting clients may have a drink

REQUIRED
a) Which of the items above will be classified as “entertainment” as defined in s1?
b) To which of the items above will s17(2)(a) apply (i.e. Input Tax denied)?

SUGGESTED SOLUTION

a) All the items listed will be classified as “entertainment”.


b) Input Tax will be denied in terms of s17(2)(a) on all of the items listed.

EXAMPLE 12.2
S Ltd is a construction company that has a head office in Johannesburg and a smaller branch in
Durban. S Ltd is a registered VAT vendor.

S Ltd decided to hold a workshop at the Durban branch to update employees on the latest
building techniques and the strategy for the company for the next 5 years.

15 staff members from Johannesburg attended the training workshop and 5 staff members from
Durban.

The CEO of S Ltd is included in the 15 staff members noted above. He met with a potential client
at one of Durban’s finest restaurant in order to discuss business opportunities. The CEO is based
at the head office in Johannesburg.

S Ltd incurred the following costs. You may assume that all the amounts include VAT.
1) Cost per workshop attendee for meals: R550 per person
2) Workshop training materials (i.e. books and stationery): R20 000
3) Accommodation in a hotel for the 15 attendees from Johannesburg for 2 nights each. The
total cost per person was R2 000.
4) Payment for a guest speaker to talk about latest building trends: R10 000.
The guest speaker is self-employed and is a resident of Johannesburg. The guest speaker
had to spend the night in Durban and paid for the accommodation through his own
account.
5) Food for the guest speaker: R3 000
6) CEO’s meal during client dinner: R2 000
7) Client’s meal during client dinner: R2 500

REQUIRED
a) Which of the items listed above will be classified as “entertainment”?
b) Discuss whether Input Tax can be claimed on the items listed.

SUGGESTED SOLUTION
a) The following items are classified as entertainment:

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- Meals for workshop attendees (number 1)


- Hotel accommodation (number 3)
- Food for guest speaker (number 5)
- CEO’s meal (number 6)
- Client’s meal (number 7)
b)
1) Input Tax may only be claimed on meals that were provided to staff members that
were obliged to spend one night away from their usual place of residence. Therefore,
the Input Tax may be claimed on the meals that were served to the Johannesburg
staff members: R550 x 15people x 14/114 = R1 013
As the Durban staff members were not obliged to spend one night away from home,
the Input Tax on their meals is denied.
2) The workshop training materials were incurred in the carrying on of an enterprise and
is not considered entertainment. Input Tax may thus be claimed:
R20 000 x 14/114 = R2 456
3) Input Tax may be claimed on the hotel accommodation for the 15 employees as they
were obliged to spend one night away from their usual place of residence.
R2 000 x 15people x 14/114 = R3 684
4) Input Tax may be claimed on the payment to the guest speaker as it is not considered
entertainment.
R10 000 x 14/114 = R12 281
5) Input Tax may be claimed on the meal to the guest speaker as the speaker is a self-
employed natural person that was obliged to spend one night away from home.
R3 000 x 14/114 = R368
6) Input Tax may be claimed on the CEO’s meal as the CEO is an employee that was
obliged to spend at least one night away from home.
R2 000 x 14/114 = R246
7) Input Tax is denied on the meal to the client. As the client is not employed by S Ltd,
the usual rule about spending one night away from home does not apply.

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13. MOTOR CARS


EXAMPLE 13.1
O Ltd incurred the following amounts and wishes to know if Input Tax may be claimed:
1) Purchased a delivery truck for R250 000 (incl VAT)
2) Purchased a Mercedes Benz. The vehicle will be parked at the office and used, when
necessary, to convey executives between branches. The Mercedes Benz cost R450 000
(incl VAT)
3) Diesel for the delivery truck cost R5 000 (incl VAT)
4) Petrol for the Mercedes cost R3 000 (incl VAT)
5) License for the truck cost R700 (incl VAT)
6) License for the Mercedes cost R800 (incl VAT)
7) Insurance for the truck cost R2 000 (incl VAT)
8) Insurance for the Mercedes cost R5 000 (incl VAT)

REQUIRED
You are required to calculate the Input Tax relating to the above transactions.

SUGGESTED SOLUTION
INPUT TAX R
1. Delivery truck 250 000 x 14/114 30 702
2. Mercedes Motor car -- Input Tax denied (s17(2)(c)) 0
3. Diesel Zero-rated 0
4. Petrol Zero-rated 0
5. Truck license 700 x 14/114 86
6. Mercedes license 800 x 14/114 98
7. Insurance - truck 2 000 x 14/114 246
8. Insurance - Mercedes 5 000 x 14/114 44

NOTE: It is only the purchase of the Mercedes on which Input Tax is denied. All the other costs
relating to the Mercedes can still qualify for Input Tax.

EXAMPLE 13.2
M Ltd is a transport company and is a registered VAT vendor.
M Ltd conveys both passengers and goods and has a large number of staff members.
During the current VAT period, M Ltd purchased the following vehicles:

Bus A: This bus can convey 14 persons and cost R150 000 (incl VAT). It will be used to transport M
Ltd’s own staff to and from work.

Bus B: This bus can convey 20 persons and cost R250 000 (incl VAT). It will be used to transport M
Ltd’s own staff to and from work.

Bus C: This bus can convey 40 people and cost R400 000 (incl VAT). It will be used to transport
fare-paying passengers.

Truck D: This truck will be used to convey goods and cost R600 000 (incl VAT).

REQUIRED
Calculate the Input Tax relating to the above items.

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SUGGESTED SOLUTION
INPUT TAX R
Bus A As the bus cannot convey more than 16 persons, it is classified
as a "motor car" and Input Tax is thus denied. 0

Bus B Bus can carry more than 16 persons and is thus NOT classified
as a "motor car".
Input Tax may be claimed as it is in relation to the enterprise.
250 000 x 14/114 30 702

Bus C The transport of fare-paying passengers is an exempt supply


(s12(g)), therefore no Input Tax may be claimed as it does not
relate to the carrying on of an enterprise. 0

Truck D 600 000 x 14/114 73 684

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14. DISPOSALS & s16(3)(h)


EXAMPLE 14.1
NOTE ON THIS LECTURE EXAMPLE: Part (c) contains the VAT implications of an Indemnity
Award. It is recommended that you work through the notes on indemnity awards before
attempting part (c).

Y Ltd is an 80% VAT vendor.


Y Ltd purchased an asset for R114 000 (incl VAT) and used this for both taxable and exempt
supplies.
Y Ltd decides to sell the asset at its current open market value of R200 000.

REQUIRED
a) How much Input Tax could originally be claimed?
b) Determine the amount of Output Tax and Input Tax that may be applicable when the asset is
sold.
c) How would the situation change if the asset was originally purchased as described above but it
was destroyed and the insurance company paid out R200 000 as an indemnity award?

SUGGESTED SOLUTION
a)
When the asset was originally purchased, Y Ltd claimed Input Tax of:
R114 000 x 14/114 x 80% = R11 200

b)
When the asset is sold, the following will happen:

OUTPUT TAX:
Output Tax will be calculated at 100%. The total Output Tax is thus:
R200 000 x 14/114 x 100% = R24 561

As Y Ltd could originally only claim 80% of the Input Tax when it was purchased (see (a)) it can
now apply s16(3)(h).

s16(3)(h) applies to the lower of:


- Cost (R114 000)
- Open market value (R200 000)
INPUT TAX:
Additional Input Tax that can be claimed in terms of s16(3)(h) is:
R114 000 x 14/114 x 20% = R2 800

NOTE: The additional Input Tax is thus the exempt supplies %. It is the % that could not be claimed
when the asset was originally purchased.

IMPORTANT:
Remember, Output Tax is always at 100%.
The only times it is apportioned is for:
- Fringe benefits
- Indemnity awards
- Change in use
c)

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In this case, there was an indemnity award received.


Originally, the company would have been able to claim Input Tax of
R114 000 x 14/114 x 80% = R11 200

When the company receives the indemnity award, it is a deemed supply in terms of s8(8).
Therefore Output Tax must be raised.

The Output Tax is calculated as R200 000 x 14/114 x 80% = R19 649
The Output Tax is thus apportioned for the same % as taxable supplies.

IMPORTANT: Make sure that you see that the Output Tax on a sale was calculated at 100% but
that the Output Tax on the indemnity award was apportioned to equal the taxable supplies’
percentage (80%).

EXAMPLE 14.2
NOTE ON THIS EXAMPLE: This lecture example contains VAT on fringe benefits. It is
recommended that you work through the notes on fringe benefits first before attempting this
lecture example.

I Ltd is a registered VAT vendor and makes 70% taxable supplies.


The information below relates to the current VAT period. You may assume that this a Category A
VAT vendor and that all the transactions took place on the first day of the VAT period. In other
words, the VAT for 2 months must be accounted for.

TRANSACTION 1
I Ltd purchased Motor Car A, a BMW, to give to the manager of the exempt business as a
company car. The vehicle cost R400 000 (incl VAT). All of the costs relating to the vehicle will be
borne by I Ltd.

TRANSACTION 2
I Ltd purchased a delivery van (not a “motor car” as defined) for use as a company car by the sales
manager. The sales manager works for both the taxable and the exempt business. The delivery
van cost R500 000 (incl VAT). I Ltd pays for all the costs relating to the vehicle.

REQUIRED
Calculate the Input Tax and the Output Tax applicable to the two transactions.

SUGGESTED SOLUTION
TRANSACTION 1 R
OUTPUT TAX
Company car (fringe As this relates to the exempt business, there is no Output 0
benefit) Tax as this is not a supply in the carrying on of an enterprise
INPUT TAX
Purchase of motor car Input Tax denied - s17(2) 0
TRANSACTION 2
OUTPUT TAX
Company car (fringe [(500 000 x 100/114 x 0,6%)-Rnil] x 14/114 x 2 months x 70% 452
benefit)
INPUT TAX

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Purchase of delivery van Not a motor car, thus claim Input Tax. 42 982
500 000 x 14/114 x 70%

NOTE: The Output Tax on the fringe benefit is apportioned.


REMEMBER: Output Tax is only apportioned for:
- Fringe benefits
- Indemnity awards
- Change in use

EXAMPLE 14.3
NOTE ON THIS LECTURE EXAMPLE: Part (b) of the lecture example contains an indemnity award.
It is recommended that you work through the notes on indemnity awards before attempting
part (c).

K Ltd is a registered VAT vendor. K Ltd is a Category C VAT vendor, which means that VAT returns
are submitted on a monthly basis.
K Ltd owns a building that it lets out to various tenants. 80% of the tenants use their rented
spaces for commercial accommodation and the remaining 20% of the rentals are considered to be
residential accommodation. The Commissioner has accepted these ratios.

For each of the transactions below you are required to calculate the Input Tax and the Output Tax
implications. You may assume that all purchased are from registered VAT vendors.

TRANSACTION 1
K Ltd purchased a printer that is used to print invoices for all the tenants in the building. This
printer cost K Ltd R57 000 (including VAT). This printer was purchased 2 years ago.
In the current year’s April VAT period, K Ltd sells the printer at its open market value of R22 800.

TRANSACTION 2
K Ltd purchased a laptop computer on which it uses for bookkeeping. The computer had a cost of
R15 000 (excluding VAT).
In March of the current year, a fire broke out in the accounting office and the computer was
destroyed. K Ltd’s insurer indemnified K Ltd for the loss by paying R13 500 into K Ltd’s bank
account.

TRANSACTION 3
K Ltd purchased a water cooler for use in its administrative offices. The water cooler had a cost of
R11 400 (including VAT).
In August of the current year, K Ltd sold the water cooler in order to buy a newer model. K Ltd
sold the water cooler for R8 000.

TRANSACTION 4
K Ltd purchased a Toyota Yaris one year ago to use as a pool car by employees that are required
to use vehicles during business hours. This vehicle is not considered a company car of any specific
employee as it is available to all employees.
The vehicle had a cost of R157 000 (including VAT).
In June of the current year, K Ltd sold the vehicle for R81 000.

REQUIRED
For all the transactions above, calculate the input tax and output tax when the items were
purchased and sold/destroyed.

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SUGGESTED SOLUTION
In this case the input tax would be apportioned in some instances as the items were used for
making both taxable and exempt supplies.
When the assets are disposed of, s8(16) indicates that the output tax must be calculated at 100%.
The taxpayer may then claim additional input tax in terms of s16(3)(h).
It is important to bear in mind that s8(14) must be considered which indicates that when input tax
was denied in terms of s17(2) then there will be no output tax.

TRANSACTION 1
WHEN PURCHASED
When the printer was purchased originally it would be used for both the taxable and exempt
supplies. Therefore, the input tax must be apportioned.
The input tax was:
57 000 x 14/114 x 80% = 5 600

WHEN SOLD
When the printer is sold, output tax must be calculated at 100% (s8(16)).
The output tax is thus:
22 800 x 14/114 x 100% = 2 800
NOTE: Remember that the term “open market value” refers to the market value including VAT.

Less than 100% of the input tax could have been claimed when the printer was purchased.
Therefore, when it is sold the vendor may claim additional input tax in terms of s16(3)(h).
The additional input tax is calculated on the lower of:
- cost (57 000)
- open market value (22 800)
The additional input tax is thus:
22 800 x 14/114 x 20% = 560

TRANSACTION 2
WHEN PURCHASED
When the laptop was purchased originally it would be used for both the taxable and exempt
supplies. Therefore, the input tax must be apportioned.
The input tax was:
15 000 x 14% x 80% = 1 680

WHEN DESTROYED
When the laptop is destroyed the vendor received an insurance payout. Therefore, in terms of
s8(8) this is a deemed disposal and output tax must be raised.
It is very important to note that the output tax will not be calculated at 100%. When an indemnity
payment has been received, the output tax is apportioned to the extent of taxable supplies.
The output tax is thus:
13 500 x 14/114 x 80% = 1 326

NOTE: As the output tax was not calculated at 100%, s16(3)(h) is not applicable.

TRANSACTION 3
WHEN PURCHASED
The water cooler meets the definition of “entertainment” in s1. Therefore, in terms of s17(2)(a),
input tax is denied.

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There is thus no input tax claimed when purchased.

WHEN SOLD
As input tax was denied when it was purchased, the output tax should be Rnil (i.e no output tax
must be calculated) (s10(21))

TRANSACTION 4
WHEN PURCHASED
The Toyota Yaris is a “motor car” as defined in s1. Therefore, in terms of s17(2)(c), input tax is
denied when the motor car is purchased.
There is thus no input tax claimed when purchased.

WHEN SOLD
As input tax was denied when it was purchased, no output tax must be calculated (s8(14))

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