QUESTION 1 (17 marks)

DAWG (Pty) Ltd (Dawg), a small firm in Pretoria, specialises in tax-related services and consulting. You have
been employed by Dawg for the past three years as a manager and have been confronted with the following
problems and queries (all amounts INCLUDE VAT (if applicable) and all parties are registered VAT vendors and
South African residents, unless specifically stated otherwise.)

Hazard Limited (“Hazard”) is a resident company that manufactures multi-vitamins that is sold both locally and
internationally. Hazard has a June year-end and a one-month VAT-period.

Hazard purchased a rent-producing property (situated in South Africa) from a non-vendor for cash at its market
value of R3 250 000 during February 2019. Transfer duty of R177 000 was paid by Hazard on 20 April 2019, the
day that the property was registered in the company’s name.

The rent-producing property consists of commercial offices (60%) and residential flats (40%). SARS also
accepts this ratio for VAT apportionment purposes.

Hazard decided to sell the rent-producing property as a going concern to Torres Limited (a registered vendor for
VAT) for R4 500 000 (excluding VAT) on 30 April 2020. Torres Limited will settle the full purchase consideration
immediately and will continue to utilize the property as offices and flats in the same proportion as it was
previously used by Hazard.

REQUIRED
a) Calculate, supported by references to legislation, the input tax that Hazard could claim on the original
purchase of the rent-producing property in 2019. (4)
b) Discuss, supported by calculations, all the VAT implications (including time of supply) of the proposed
sale of the property for both Hazard and Torres Limited. You may assume that the transaction will be
classified as the sale of a going concern in terms of section 11(1)(e) of the VAT Act. (13)

Question 2 (15 Marks)

You are a senior tax consultant in the VAT division of Samos Consulting (Pty) Ltd in Johannesburg, South Africa.
Your client – Research.net – is a company situated in the United States of America. Research.net is a web-
based company that provides e-books that can be downloaded and used by children when doing research on
various school projects.

Research.net received 100 000 hits from South Africa during the period 1 April 2018 to 30 September 2018 and
2 000 e-books were downloaded as a result of this. All the downloads were paid by credit cards issued by South
African Banks. The value of the e-books downloaded exceeded R50 000 on 25 August 2018. It is anticipated
that the number of school children that will make use of Research.net will double during the period 1 October
2018 to 31 March 2019 with the value of e-books downloaded during the same period increasing to R120 000.

REQUIRED
a) Your client requested your opinion as to whether it will have to register as a vendor in South Africa and
if so from which date. Please refer to all relevant provisions of the ValueAdded Tax Act 89 of 1991 (as
amended). (5)
b) If it is assumed that Research.net is not liable to register as a vendor for VAT purposes in South Africa,
please indicate, with reference to the VAT Act, whether any VAT is payable on the download of the e-
books and who will be liable to pay the VAT, by when it should be paid and how the VAT should be
calculated. (10)