2/19/2022

TL103
2022
TAX4861/2

Define Tomorrow.

SYLLABUS
• The syllabus of TAX4861/2 is based on the SAICA Tax Examinable
pronouncements, with some exceptions for TAX4861 which are indicated
in the tutorial letters.
• Only tax legislation which is effective for the 2022 year of assessment
will be examinable in the 2023 ITC exam and will be covered in the UNISA
syllabus.
• Any amendments effective after these dates will not be incorporated into
your study material.
• Therefore the UNISA tests and examination and the ITC 2023 will test
• individuals with a 2022 year of assessment and
1 March 2021 to 28 February 2022

• non-natural persons with a year of assessment ending on or before

31 December 2022.

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TL 103 Topics:
- Donations tax
- VAT
- Relevant case law (TL102)

Define Tomorrow.

TL103
Donations
Tax

Define Tomorrow.
https://www.thirdsector.co.uk/fundraising-events-insurance-
considerations/article/1432540

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Donations Tax
• A separate tax (although regulated by the Income Tax Act) on the
transfer of world-wide assets at no or not enough consideration
• Value of property transferred by:
• RSA resident or
• Local company (excluding public companies)
• Exclude specific and general exemptions
• Rate - 20% (cumulative life-time value under taxable
donation ≤ R30mil); or
• 25% (cumulative life-time value under taxable donation >
R30mil)
• Payable by donor by the end of the month following the month
during which the donation takes effect
• What if asset was held in community of property?
• Do not confuse with s 18A☺
• CGT: par 22 (add to base cost), if par 38 applies – then disposal at
market value)

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Framework for the calculation of Donations Tax

F No Was property disposed of by a resident? Section 1 and 54

R Yes
Section 54, 55
Was this property disposed of under any
A No
donation or deemed donation?
Yes
and 58

M Yes Is the donation exempt from donations tax?

Section 56(1) &
56(2)(c)

E No

W Calculate the value of the donation Section 62

O Calculate the Taxable Donation:

Value of donation less Balance of Exemption
Section 56(2)
Section 60(2)
R100 000 natural

R person
Applied in order of
donations

K Calculate Donations Tax:

Taxable Donation x 20% (or 25%)
R10 000 (casual gifts)
non-natural person

No Section 64
Donations See Silke 26.2
Tax Payable
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What is a donation?
Donation (s 55) is:
• Gratuitous disposal of property or waiver of a right.
 Gratuitous = no consideration received.
 Property that is given away.
 Rendering of services for free is not a donation and therefore not subject
to donations tax. No ‘property’ disposed of. (Rendering services for free,
but in exchange for something may have Income Tax consequences.)
Deemed donation (s 58) is:
• Disposal of property for inadequate consideration. Property that you sell
at less than its value. Inadequate = less than fair market value.
• The foregone interest on an interest free or low interest loan made to a
trust or a company by a connected person is deemed to be a continuing
annual donation for purposes of donations tax deemed to have been
made on the last day of the year of assessment of the trust. (Section 7C)
• From 1 January 2021 section 7C also applies to consideration received in
respect of certain preference share issues where such consideration will
be deemed to be a loan and any dividend or foreign dividend accrued in
respect of the preference share will be deemed interest (section 7C(1B)).
Deemed donation = deemed interest @ official interest rate less
preference dividend accrued.

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Deemed donation
Section 7C applies to the following loans:
• Made BY a connected person to a trust (by natural person or company
at the instance of the natural person)
• Made BY a connected person to the natural person or company (above)
• Made TO a company in which the trust directly or indirectly holds at least
20% (alone or together with other connected persons) of the equity
shares or voting rights.
Also from 1 January 2021 to certain preference
share issues → deemed loan:
• Preference shares (defined in section 8EA(1)) subscribed for BY a natural
person, or company at the instance of a natural person, in a company where
• at least 20% of the equity shares (or voting rights) in the issuing company
are held by a trust (alone or together with a beneficiary) that is a connected
person to the natural person or company subscribing for the preference
shares.

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Section 7C From 1 March 2017

Donations tax

Sell asset @ MV → SELLER

Official
Interest free interest
Sell asset @ MV to Trust rate
Financed by loan less
Interest
< Official rate of interest charged

Deemed donation
Last day YOA

 Donations tax
https://www.freepik.com/

Donations Tax – s 7C
Mr X (resident) sold a local block of flats (@ market-value R3 million) to a resident
discretionary trust on 1 Mar 2021. The sale was financed by an interest-free loan
account. Market related interest rate is 7% and the official rate of interest is 4.5%. No
amount has been repaid. Mr X’s minor daughter is the only beneficiary with vested rights
to both income and capital (the asset).
Mr X made no other donations during the year.
Donations tax implications?

Interest-free loan
Deemed
donation
Mr X Trust

Deemed donation = difference between interest payable on loan and the interest
payable on the loan at the official rate of interest on the last day year of assessment.
R3 million (loan) x 4.5% (official rate of interest) = R135 000 – R0 (interest free) = R135 000

R135 000 – R100 000 (s 56(2)(b) exemption) x 20% donations tax = R7 000, payable by the end of
the month following the end of the year of assessment, i.e. 31 March 2022
https://www.freepik.com/

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Section 7C(1B) From 1 January 2021

Official interest rate (4.5%)

Trust holds 25% shares in Company A (Co A). Co A has 30 June

financial year-end. On 1 December 2021 Mr X, beneficiary of Trust,
subscribes for 400 2% cumulative preference shares in Co A at par
value of R1 000 per share. Consideration = R400 000.
R400 000 = deemed loan ito s 7C(1B)

Mr X in 2022 YOA: Preference dividend (R400 000 x 2% x 90/365) R1 973

Deemed interest s7C(1B) (R400 000 x 2% x 90/365) R1 973
Official interest rate (4.5%) OR R400 000 x 4.5% x
Last day YOA
90/365 = R4 438 - R1 973

Deemed donation (R400 000 x (4.5% - 2%) x 90/365) R2 466

Donations tax @ 20%/25% (if R100 000 annual exemption already used)
https://www.freepik.com/

11

Section 7C(1B) From 1 January 2021

Income Tax Summary Mr X 2022 YOA

1 Dec 2021– 28 Feb 2022:

Deemed loan (ito s7C(1B)) interest accrued → R1 973
(R400 000 x 2% x 90/365 = R1 973)

28 Feb 2022: Deemed dona on (ito s7C(3)) → R2 466

(R400 000 x (4.5% - 2%) x 90/365 = R2 466)

https://www.freepik.com/

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Donations made by spouses

• Married in community of property (COP) and
property forms part of the communal estate –
spouses taxed on equal shares
• Out of COP or asset is excluded from communal
estate – spouse making the donation
• What is a spouse:
o Marriage or customary union i.t.o of the laws
of the RSA
o Union i.t.o any religion
o Same-sex or heterosexual union – if intended
to be permanent
Will in the absence of proof to the contrary be
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deemed to be out of COP. 13

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Exemptions from donations tax

Specific exemptions:
It is important to know the specific exemptions from donations
tax. (S 56(1) & 56(2)(c)).
Silke has a comprehensive list in par 26.6.1.

General exemptions:
• Non-natural persons – R10 000 per annum CASUAL GIFTS, not
the first R10 000 of a larger gift. (pro-rata for y.o.a)
• Natural persons – R100 000 per annum (NOT pro-rata)
 Applied in order that donations take effect
• GIFTS TO PERSONS including CHILDREN:
o Bona-fide maintenance (paid to any person) is exempt
(s 56(2)(c))
o Donations qualify for R100 000 exemption per annum
o Keep section 7(3) relating to minors in mind for TL106

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Calculate donations tax (section 64)

• Donations tax:
• If the aggregate value of the current taxable donation plus the value of all
property donated under a taxable donation before the current donation ≤ R30m
then:
• 20% x of the value of the donation; or

• if aggregate value of the current taxable donation plus the value of all property
donated under a taxable donation before the current donation > R30m then:
• 25% x aggregate value in excess of R30m

1 March 2018 SILKE example 26.16

• Donations tax is payable by the end of the month following the month that the
donation takes effect.

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Donations Tax Example

Joe’s transactions for the current year of assessment:
1. A R100 000 interest free loan to an inter vivos discretionary
trust on 1 March. Joe’s daughter and son are the beneficiaries
of the trust. Assume that the official rate of interest is 4.5%
during the current year of assessment.
2. On 1 May he gave R40 000 to his sister as a 40th birthday
gift.
3. On 1 July he gave R60 000 to his 19-year-old son for living
expenses. His son moved out to a university residence.
4. R80 000 to a friend’s soup kitchen (not a PBO) on 1 October.
5. R11 000 to his mother (not a dependent) on 1 December.
Calculate the donations tax consequences for Joe that arise during
the current year of assessment as a result of these transactions.
Assume that the aggregate value of his donations does not exceed
R30 million.

If aggregate value not given assume it is less than R30m

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Donations Tax Example - Solution

Donation Exemption Taxable Donations Payable
Amount Donation tax @ 20% End of month following
donation

2. R40 000 (R40 000) Rnil Nil N/A

Sister (1 May) Annual exemption

3. R60 000 (R60 000) Bona Rnil Nil N/A

Son (1 July) fide maintenance

4. R80 000 (R60 000) R20 000 R4 000 30 November

Not PBO Annual exemption
remaining
(1 Oct) (R100k – R40k)

5. R11 000 Rnil R11 000 R2 200 31 January

Mom (1 Dec)
1. (R100 000 Rnil R4 500 R900 31 March (next
x 4.5%) YOA)
R4 500
Int-free loan
(28 Feb)
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Donations Tax Example

Joe’s transactions for the current year of assessment:
1. Joe made a cash donation of R31 million to his brother on
1 April
2. On 1 May he gave R40 000 to his sister as a 40th birthday
gift.
3. On 1 July he gave R60 000 to his 19-year-old son for
living expenses. His son moved out to attend university at
a residence.
4. R80 000 to a friend’s soup kitchen (not a PBO) on
1 October.
Calculate the donations tax consequences for Joe that arise
during the current year of assessment as a result of these
transactions.

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Donations Tax Example - Solution

Donation Exemption Taxable Donations Payable
Amount Donation tax @ End of month following
donation
20%/25%
Value of property donated on 1 April = R31m – R100 000 = R30 900 000 >
R30m
1. R31mil (R100 000) R30.9mil R30m x 20% + 31 May
Annual exemption R0.9m x 25%
Cash (1 Apr)
= R6 225 000

2. R40 000 Rnil R40 000 R10 000 30 June

Sister (1 May) @25%

3. R60 000 (R60 000) Bona Rnil Nil N/A

Son (1 July) fide maintenance

4. R80 000 Rnil R80 000 R20 000 30 November

Not PBO @25%
(1 Oct)

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Donations Tax Example - notes

Notes:
• The rate used (20% or 25%) to determine donations tax
is based on the value of the property
• The value is based on the aggregate value of all
taxable donations plus the current donation
• The value of the property excludes:
• Annual exemption; and
• Specific exemptions from donations tax
• Order of calculation is important
• DON’T add all donations together and then apply the R100 000
exemption (for natural persons). The exemption is applied to each
donation until fully utilized.

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TL103
Value Added
Tax

Define Tomorrow.
https://www.freepik.com/free-vector/value-added-tax-system-abstract-
concept-
illustration_12291377.htm#query=VAT&position=0&from_view=search 21

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TL103 VAT:
- Overview
- Output tax
- Input tax
- Imports
- Fixed property
- Adjustments
- Leasehold improvements

Define Tomorrow.

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VALUE-ADDED TAX (VAT)

• Indirect tax that is levied on the supply of goods (whether capital
or not) and services.
• Levied in terms of the Value-Added Tax Act 89 of 1991
(VAT Act) at either 15% (14% prior to 1 April 2018) or 0%.
• VAT levied by a VENDOR = output tax.
• The purchasing VENDOR may then claim this VAT as input tax (if
it qualifies).
• Distinguish from gross income and general deduction arguments
as applicable to Income Tax.
• Do NOT consider whether VAT is incurred in the production of
income, or received by or accrued to or even of a capital nature. It
is irrelevant when dealing with VAT.
• From an Income Tax viewpoint, VAT is not received by or accrued
to Vendor. The vendor only acts as an agent on behalf of SARS.
However, VAT not claimed as input tax becomes part of the cost
of an asset / expense.
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Calculation of VAT
For the tax period:
• Output tax
• less Input tax
• +/- Adjustments
• = VAT payable or (refundable)

• Terminology
• The value of a supply (excl VAT →100%)
• Consideration/Open MV (incl VAT→115%)

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VAT - Overview
No VAT

Exempt
VAT Mixed
supplies s17(1)
supply Vendor (Apportion)
(s12 & 2)
Standard
Carrying of an Input denied

Time and value of supplies

rated (15%)
Time and value of supplies

“enterprise” s17(2)
(s7(1)(a))

Zero rated Taxable Supply of Notional

(0%) supply goods/services input tax s1(b)
(s9 & 10)

(s11)
(s1 & 7)
Deemed Imported
supplies Goods/Services
(s8 & 18(3)) s7(1)(b), 13 & 14

Adjustments Adjustments
(s18(1), 18(2), s18(4)-(5), 18(9),
18A, 18B,18C, Output tax Input tax 16(3)(h), 22(1),
22(2)-(3A)) 22(1A), 22(4) &
22(6)
Supplies BY Vendor Supplies TO Vendor
Supply (Silke 31.5.1)
Deemed supply (Silke 31.12) Levy VAT Claim VAT
NO APPORTIONMENT APPORTION
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Enterprise (Silke 31.7)

The concept of enterprise is integral to VAT. Everything that is part of the enterprise,
whether capital or not, could have a VAT effect. Everything not part of enterprise (e.g.
exempt supplies are not part of the enterprise) and therefore fall outside the VAT net.

An enterprise is:
• Any enterprise or activity carried on continuously or regularly.
• In or partly in South Africa by any person (also partnerships).
• Whereby goods and services are supplied for a consideration (whether for profit
or not).
• Consideration = value plus VAT (Silke 31.7.2)
• Specifically included in enterprise (Silke 31.7.3):
o Commencement or termination of enterprise
o Supply of electronic services and the facilitation thereof from a place in an
export country. Register at the end of the month when value of taxable
supplies of electronic services > R1m for any consecutive 12-month period (1
April 2019) (Silke 31.33)

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Enterprise (Silke 31.7)

• Specifically excluded from enterprise (Silke 31.7.4
(proviso’s to enterprise def)):
o Certain supplies by foreign branches (proviso (ii))
o Service rendered by employees (no VAT on salaries (proviso iii))
o Exception → independent contractor and non-executive
directors (BGR 40 and 41) as they do not receive
remuneration. They must register for VAT if the amount
received for services rendered exceeds the registration
threshold.
o Hobbies – private, recreational pursuit of a natural person (proviso
(iv))
o Exempt supplies (proviso (v))
o Commercial accommodation (Silke 31.11.3) ≤ R120 000/12mths
(proviso (ix))

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Vendor (Registration requirements)

• Compulsory (s 23(1)) (Silke 31.6.1)

o Value of taxable supplies > R1million or have a written
contractual commitment to make taxable supplies in next 12
months > R1 000 000 (any 12 month period) per person, not per
enterprise.
o Cessation of business, replacement of capital assets or
abnormal circumstances not included in value
o Foreign Electronic services supplier and
intermediary are liable to register at end of month
where the total value of taxable supplies > R1million
from 1 April 2019 (s 23(1A)) (prior to 1 April 2019 >R50
000) for any consecutive 12-months

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Vendor (Registration requirements)

• Voluntary (s 23(3)) (Silke 31.6.2)

o Conducting an enterprise or acquiring a going concern and
taxable supplies > R50 000 (12-month period)
o Note that if the taxable supplies are expected to exceed R50 000
the vendor must register on the payments basis until taxable
supplies actually exceed R50 000 after which the vendor will
move to the invoice basis in the next tax period.
o An activity – likely to make taxable supplies only after a period
of time
o Commercial accommodation > R120 000 for a 12-month period
o Agent
o Receives or makes a supply of goods or services for or on behalf
of a principal
o The agent can issue a tax invoice and must within 21 days of
supply (s 54(1))

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Accounting basis & Tax periods

Accounting basis
• Invoice or payments basis (Silke 31.3)
• Only certain persons may account for VAT on the payments basis
(also if expect R50 000 taxable supplies in 12 months, payments
basis until actual is R50 000, then invoice)
• Invoice basis – VAT is accounted for the earlier of when:
o An invoice is issued; or
o Any payment is received.
• Payments basis – VAT is accounted for when:
o Payments are received (supplier); and
o Payments are made (recipient).

Tax periods
• Categories A – E (Silke 31.4)
(category will be given in a question)

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Output tax – Overview

Supply of goods and
services

No output tax Exempt

charged (excl from supplies Taxable supplies
enterprise) (s 12 and 2) (section 1 and 7)

DO NOT
APPORTION
Standard rated supplies (15%)
(exceptions) (section 7(1)(a))

Zero-rated supplies (0%)

OUTPUT TAX (section 11)
(section 7(1)(a))

Deemed supplies
(section 8 and 18(3))

Adjustments (section 18(1),

18(2), 18A, 18B, 18C and 22(2) Time and value of supplies
– (3A) (section 9 & 10)

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Detail of Output Tax DO NOT APPORTION!!!

• Taxable supplies = standard rated and zero-rated supplies. Four exceptions:

o Fringe benefits;
• Standard rated supplies – taxed at standard rate
o Indemnity
• 15% (INCLUDING DEEMED SUPPLIES) (14% before 1 April 2018) payments;
• Zero-rated supplies – taxed at zero rate – 0% o S 18(2) adjustment;
o Leasehold
• Exempt supplies – not taxed (excluded from enterprise) improvements
• It is therefore imperative to know which supplies are standard rated, zero-rated
and which are exempt.
• Furthermore – there is an important difference between zero-rated and exempt
supplies and it deals mainly with the claiming of input tax.
• Deemed supplies
• Ceasing to be a vendor
• Indemnity payments received
• Supplies to independent branches
• Fringe benefits

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Zero-rated supplies (s 11)

Output tax is levied @ 0%.
• Direct export of movable goods
VAT = Rnil.
• Exported services
• Sale of going concern (remember s 18A adjustment)
• Seed and fertilizer etc. for farming purposes
• Gold coins issued by the Reserve Bank
• Basic foodstuffs (brown bread, milk, fresh fruit & vegetables, etc).
• Female sanitary products (from 1 April 2019)
• Fuel levy goods (petrol, diesel, bio-fuels, paraffin, etc.)
• Goods supplied by a vendor to a foreign person (not a vendor), but
delivered to a registered vendor in SA and used wholly to make taxable
supplies
• Export services
• Services relating to intellectual property rights used outside SA
• Municipal rates and taxes (property rates and taxes) charged by a
municipality (other services separately charged @ 15%)

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Zero-rated supplies (s 11)

• Sale of going concern (s 11(1)(e) & 18A (Silke
31.10.3 & 31.29))
o Very specific criteria must be met
• Purchaser and seller registered vendors
• Purchaser can register if seller’s taxable supplies > R50 000
in 12 months (s 23(3)(c))
• Written consent that going concern Output tax is levied @
0%.
• Intention of parties: Income earning activity
VAT = Rnil.
• Assets to carry on enterprise once sold
• Agreed in contract that 0%
• Mainly for taxable supplies  0% (Purchaser possible s 18A
output)
• Not mainly  15% and 0% (apportionment)
• (Seller possible s 16(3)(h)).
• Silke Example 31.51 and 31.52

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Example
• Flex Limited (“Flex”) is a resident company that manufactures multi-
vitamins that are sold both locally and internationally. Flex has a June
year-end and a one-month tax period (category C).
• Flex 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 Flex 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. Including VAT at 0%
• Flex decided to sell the rent-producing property as a going concern to
Echinea Limited (a registered vendor for VAT) for R4 500 000 (excluding
VAT) on 30 April 2022. Echinea 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 Flex.

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Example (cont.)

REQUIRED: Seller
Levy Output
At what rate?

Part (b) 13 Marks

Discuss, supported by calculations, all the VAT
implications (including time of supply) of the proposed
sale of the property for both Flex and Echinea 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. Buyer
Claim VAT
If used to make
taxable supplies

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Solution
VAT implications for Flex
The sale of the property to Echinea Limited as a going concern is a zero-rated
supply, as the property was used mainly (more than 50% (60% - renting of
commercial offices, which is a taxable supply)) for taxable supplies. Thus, output
tax is Rnil.
Flex will however be entitled to claim an additional input tax in terms of section
16(3)(h) of the VAT Act on the disposal, calculated as follows:
AxBxC
A = tax fraction = 15/115 (sale occurred after 1 April 2018, therefore the VAT rate
was 15%)
B = lesser of adjusted cost (R3 250 000) and the current open market value (R4
500 000).
C = percentage of non-taxable supplies = 40%
Therefore:
15/115 x R 3 250 000 x 40% = R169 565.
Thus a section 16(3)(h)-input tax of R169 565 can be claimed in the April 2022 tax
period in which the date of the disposal (30 April 2022), falls.

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Solution
Echinea Limited
Echinea Limited will not be able to claim any input tax on the purchase, as it was a
zero-rated supply (no VAT was payable on the purchase).
(Note that since the transaction was subject to VAT, even though at 0%, transfer
duty will not be payable).
Echinea Limited will have to make a section 18A-adjustment to output tax, since
the property was acquired as a 100% taxable supply at a rate of 0%, but it will be
partly used for purposes other than making taxable supplies (40% used for exempt
supply of dwellings for rentals (section 12(1)(c))).
The section 18A-adjustment will be made during the tax period (tax period in
which
30 April 2022 falls) that the supply (purchase) was made.
The adjustment will be: R
Full cost of the going concern purchase 4 500 000
Less: % intended to be used for taxable supplies (commercial
offices – 60%) (2 700 000)
(or R4 500 000 x 40%) 1 800 000
Section 18A-adjustment to output tax (15% thereof) 270 000
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Exempt supplies (s 12)

• Financial services (see Silke par 31.11.1) (S 12(a) and s 2)
o Includes: interest paid, transfer of shares, issue of debt security
o The issue, acquisition, buying, selling or transfer of ownership of any
cryptocurrency is an exempt financial service (from 1 April 2019) (s 2(n))
o Excludes: fee based services like bank charges -> standard rated
supplies
• Residential accommodation (not commercial accommodation, i.e. guest
houses, hotels etc.) (Silke 31.11.2) (s 12(c))
• Other (see Silke 31.11.4)
o Transport of fare-paying passengers by road or rail (in South Africa)
(excluding game viewing) (s 12(g))
o Supply of education by the State or a school registered under SA School
Act (s 12(h))
o Employee organisations, i.e. trade unions (s 12(i))
o Crèche and after-school care (s 12(j))

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Accommodation – residential vs commercial

▸Residential accommodation: EXEMPT (Silke 31.11.2)
▸ ”dwelling” as def, supplied under an agreement for the letting and
hiring thereof, place of residence of a natural person; including
• Lodging or board and lodging by an employer or local authority
• Differentiate in regards to commercial accommodation
▸ Commercial accommodation: TAXABLE (Silke 31.11.3)
• (Examples 31.13 – 31.15 SILKE)
▸ Lodging or boarding (includes domestic goods & services)
regularly or systematically supplied excluding a “dwelling” under
an agreement for the letting and hiring thereof
▸ Includes: old-age homes, hospice, orphanage, homes for the
handicapped.
▸ if accommodation (and domestic goods and services) is
provided for an unbroken period exceeding 28 days:
▸ Value: Consideration = 60% of all-inclusive charge

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Standard rated supplies -

Commercial accommodation
Example: Person stays 30 days and is charged R15 000.
o Value = R15 000 x 60% = R9 000
o Output tax = R9 000 x 15% = R1 350.
o Consideration, therefore = R15 000 + R1 350 =
R16 350.
NOTE:
o All-inclusive charge includes domestic goods and
services.
o Note that domestic goods include water
o Person stays shorter than or 28 days – full value of
supply subject to VAT @ 15% (OR 14% prior to
1 April 2018).

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Deemed supply of goods and services (s 8 & 18)

• Cease to be a vendor (Section 8(2) (Silke 31.12.1))
– Not applicable with death or sequestration if executor or
trustee continues with business
– Not on goods where input tax was denied
– Value: Lesser of cost (includes VAT) or open market value
– Time: immediately before cessation
– Example 31.16 in SILKE (pay special attention to the
treatment of debtors and creditors)
• Deregister:
Taxable supplies < R1 million
Voluntary and taxable supplies < R50 000

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Deemed supply of goods and services (cont)

• Indemnity payments (Section 8(8) (Silke 31.12.2)

– Short-term contract of insurance (NOT long-term),
– Deemed supply on consideration received to extent of loss, on
taxable supplies
– NO deemed supply where:
– Not related to taxable supplies; OR
– Payment relates to total reinstatement (loss or damage beyond
economic repair) and input tax was denied; OR
– Insurer replaces damaged goods.
– Value:
– 14/114 x consideration received x % taxable supply (before 1 April 2018)
– 15/115 x consideration received x % taxable supply (after 1 April 2018)
– Time: date of receipt Four exceptions:
o Fringe benefits;
o Indemnity payments;
o S 18(2) adjustment; and
o Leasehold improvements
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Deemed supply of goods and services (cont)

• Branch or main business outside RSA (s 10(5)) (Silke 31.12.3):

normal rules relating to import & export
• Payments exceed consideration: no refund > 4 mths
• Fringe benefits: Section 18(3) (Silke 31.12.4)
o Only ito 7th Schedule ( par (i) of “gross income” def):
• Assets given free of charge or < mv (unless input tax denied)
• Right of use of an asset (other than company car)
• Free or cheap services
• Release of employee from debt owed to his employer
• Use of company car
o Not applicable:
▸ Exempt supply – section 12
▸ Charged with tax at 0% – section 11
▸ Entertainment
o Value: Cash equivalent (7th Schedule) except motor car

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Deemed supply of goods and services (cont)

• Fringe benefits (cont.)

• Time (section 9(7)):
▸ When included in remuneration - at end of the month
▸ If not included in remuneration - last day of the year of
assessment
• Motor vehicle (monthly calculation):
• 0,3% (input tax denied) or 0,6% (input tax not denied) x
“determined value” (excl VAT & finance charges) less
deduction x tax fraction x % taxable use.
• Deduction = maintenance (if applicable and payments to
employer)
Four exceptions:
• Steps and examples 31.12.4 SILKE o Fringe benefits;
o Indemnity payments;
o S 18(2) adjustment; and
o Leasehold
improvements
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Deemed supply – Fringe benefit (Use of company car)

• INCOME TAX (TL106)
o Travel allowance received - determined value of vehicle to determine
travel expense – includes VAT (GG 34047 – 25 February 2011).
o Fringe benefit on use of vehicle → determined value = retail market
value (RMV) in terms of Regulation R.362 unless
• motor vehicle acquired under a lease agreement then determined value =
TL106 RMV on date employer first acquired right of use; or
• Motor vehicle acquired under instalment sales agreement then determined
value = cash value.
RMV differs for the motor industries versus any other industry (for example the
RMV of a motor car, as defined in the VAT Act, for a motor dealer or motor
manufacturer will exclude VAT as input tax could be claimed but the RMV for
a building contractor will include VAT).
RMV will be provided in questions.
• BUT FOR VAT
o Deemed output tax on fringe benefit – determined value excludes
VAT (GN 2835).

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Deemed supply – Fringe benefit (Use of

company car)
Example 31.22. Fringe benefit: Use of
employer-owned vehicle
An employer grants an employee the right of use of a
motor car. The employer was unable to claim the input tax
when the vehicle was purchased for R161 000 (including
VAT). The employee bears the full cost of maintaining the
vehicle.
Purchased after 1 April 2018

Calculate output tax for one month in respect of the fringe

benefit.

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Deemed supply – Fringe benefit (Use of company car)

SOLUTION
Deemed output tax:
Exception –
Step 1: R161 000 × 100/115 = R140 000
apportionment of
Step 2: R140 000 × 0,3% = R420 output tax
Step 3: R420 – R85 = R335
Step 4: R335 × 15/115 = R43,70 (1 month)
Maintenance
Step 5: R43,70 × 100% = R43,70 output tax payable.
[((R161 000 x 100/115) x 0,3%) – R85] x 15/115= R43,70
If the vehicle had not been a motor car but a delivery vehicle, the employer would have
been able to claim the VAT paid on the vehicle as an input tax credit (R161 000 ×
15/115 = R21 000) and output tax would have been calculated as follows:
Step 1: R161 000 × 100/115 = R140 000
Step 2: R140 000 × 0,6% = R840
Step 3: R840 – R85 = R755
Step 4: R755 × 15/115 = R98,48
Step 5: R98,48 × 100% = R98,48 output tax payable.

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Non-supplies
Silke 31.13 – Section 8(14)
• If an asset on which input tax was denied is thereafter supplied
(e.g. disposed of), the supply of that asset does not attract VAT

No apportionment
Silke 31.14 - Section 8(16)
• If a vendor acquires goods partly for making taxable supplies and
subsequently sells this asset, the full selling price is subject to VAT
(REMEMBER: adjustment on input tax in terms of s 16(3)(h))

Four exceptions:
o Fringe benefits;
o Indemnity payments;
o S 18(2) adjustment; and
o Leasehold improvements

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49

Time of supply (s 9)
Very important with the change in the
VAT rate on 1 April 2018
• The time of supply is the time you must account for VAT
on a transaction (see summary table in TL 103).

• General rule – INVOICE basis - (s 9) – earlier of:

o Date of invoice, or
o Date any payment received (Invoice basis).

• General rule – PAYMENT basis - (s 9)

o Time of payment (must have a tax invoice)

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Time of supply (s 9)
• Connected persons ( s 9(2)(a)):
o When goods are removed or made available, or
o When the services are performed.
IF
• payment received or invoice issued before VAT return is
submitted for period in which goods removed/made
available/services performed - general rule (s 9(1)) applies
• Recipient could deduct full input tax and consideration not
determinable at time of supply - general rule (s 9(1)) applies
• Rental agreements (s 9(3)(a)) – earlier of:
o Date when payment is due, or
o Date when payment is received.

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Time of supply (s 9)
• Supplies under an instalment credit agreement
(s 9(3)(c)) – earlier of:
o delivery or payment (see Silke 31.23.3)
• Supply of goods or services (under an agreement)
for contingent consideration (s 9(4)) – earlier of:
o when and
o to the extent that any payment is
o due by the recipient,
o received from the recipient, or
o an invoice relating to the supply is issued by the supplier.
• Fixed property – special rules (see Silke 31.24)
discussed further on.

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Value of supply (s 10)

• Value of supply is important (use tables in TL 103):
o the amount of consideration in money, or
o the open market value if not in money
o LESS the VAT = Value
o Consideration = R230, then VAT = R230 x 15/115 = R30
o Value = R200 (Value is amount excluding VAT)

• Connected persons (Silke 31.16.2)

o Deemed at open-market value if consideration is less than
open-market value or consideration cannot be determined at
time of supply and connected person would NOT be able to
claim full input tax credit.

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Value of supply (s 10)

• Value of second-hand goods acquired from non-
vendor
o Lesser of consideration given by vendor or open market value
(claim only to extent of payment)
o Exported after purchase: purchase price to supplier if input tax was
claimed

• Certain transactions have special value of supply

rules, i.e.
o Commercial accommodation (see slide)
o Fringe benefit – use of motor vehicle (slide & Silke 31.12.4.2)

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Input tax Overview

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55

Input tax (s 17) APPORTION

• If used to make both taxable AND exempt supplies →
APPORTION
• Intended use - section 17(1)
• Apportionment  use turnover-based method, determined
once a year (Silke 31.20.1)
• De minimis-rule: if 95% or more is used to make taxable X
supplies  No apportionment (s 17(1)) (Silke 31.20). 95%
taxable
• Must be a vendor, seller must have charged VAT and must supplies
have a valid TAX INVOICE to claim input.
• Input tax denied: section 17(2) (Silke 31.21)
▸ For the purposes of “entertainment” as defined
▸ Membership subscriptions except professional (i.e.
SAICA)
▸ Motor car (NB not game-viewing and hearses)
▸ Medical or dental schemes Except 2nd-hand
goods

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Denial of input tax - Entertainment

Entertainment, includes:
the provision of food and beverages, accommodation,
entertainment, amusement, recreation, as well as the assets used
to make the supply.

Prohibition not applicable to:

• Business of supplying entertainment and charged for or supplied for
bona fide promotional purposes or excess given away to employees
or welfare organisation
• Entertainment supplied to employee and charged for at price
covering all direct and indirect costs.
• Personal subsistence of employee while away from usual place of
residence
• Vendors operating taxable passenger transport services
• Including other types of entertainment (other than meals and
refreshments) supplied on board a ship or flight
• Vendors organising seminars and events for reward

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Denial of input tax – ACQUISITION of motor car

Motor car includes, station wagon, minibus, double cab “bakkie”, three
or more wheels and constructed mainly (>50%) to carry passengers.
Excludes:
• Carrying only one person
• Carrying > 16 persons
• Caravans and ambulances
• Game-viewing vehicles
• Hearses
• Motor bikes

The denial does not apply to:

• Car dealers
• Car-hire business at an economic rental
• Acquired motor car as prize (betting)
• Regularly supplies motor cars as prizes

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Exam technique question – additional resources

The company’s first tax (VAT) period ended on 31 Aug 2022.
Ground floor - R
estimated rental income from letting of shops 600 000
st
1 Floor -
estimated income from supplying overnight
accommodation to streetwalkers who will not
stay more than three nights (rooms will be
furnished and cleaned on a daily basis) 300 000
nd
2 Floor -
unfurnished apartments rented out for residential
purposes ito a contract for a 12-month period 300 000
TOTAL EXPECTED RECEIPTS PER ANNUM 1 200 000

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Exam technique question – additional resources

Issue 2
With effect from 1 October 2022 the company will employ
cleaning staff for the first floor. These cleaning staff will be
entitled to a monthly salary of R3 200 each plus a free lunch.
To supply the free lunches the company will purchase a
caravan that will be equipped as a canteen. One employee
will prepare the lunches inside the caravan.
REQUIRED:
In respect of the above-mentioned, briefly indicate, with
reasons, the input tax that the company may claim, the input
tax adjustments (if any) that must be made, and the output (or
deemed output) tax that must be accounted for.

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Solution – Exam technique:

The supply of commercial accommodation (shop rentals) is a taxable supply.
The supply of overnight accommodation (commercial accommodation) is
also a taxable supply.
The supply of residential accommodation (apartment rentals) is an exempt
supply.
Input tax
• The caravan is not a “motor car”, as defined (specifically excluded), but
input tax is denied as it is acquired for purposes of entertainment (section
17(2)).
• Similarly - input tax on the ingredients to prepare the meals will also be
denied as it is for the purpose of entertainment (section 17(2)).
• The rendering of services by an employee in the course of employment is
not deemed to be the carrying on of an enterprise to the extent that
remuneration (as contemplated in the Fourth Schedule) is paid.
Therefore, no input tax consequences arise in respect of the salaries paid
to the cleaning staff and the employee that prepares the lunches
(definition of enterprise in section 1, proviso (iii)(aa)).

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Solution – Exam technique (continued):

• In terms of s 18(3) if a vendor provides an employee with a
benefit or advantage that is part of the employee’s gross
income ito par (i) of the gross income definition, such
benefit is deemed to be a taxable supply. The free lunches
constitute a fringe benefit to employees but with a Rnil value
ito par 8(3)(a) of the 7th Schedule.
The first proviso to s 18(3) provides that the section will not
apply in respect of any benefit or advantage to the extent
that it is the supply of entertainment.
The supply of free lunches in the caravan-canteen is
therefore not a deemed supply, since it constitutes
entertainment as defined.

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Deemed or notional input tax

on second-hand goods (defined in s 1)
• Must be second-hand = previously owned and used
• As from 1 April 2017 definition amended to also exclude goods
consisting solely of gold and goods that contain gold unless these
goods were acquired for the sole purpose of supplying it in the same
state (without further processing).
• Different rules if fixed property
• Goods must be in RSA on date of sale
• Notional input tax credit where acquired from a non-vendor
• Value: Use tax fraction (15/115) OR [14/114 before 1 April 2018] on:
• Lesser of consideration given by vendor OR open market value
• Time: Can only be claimed to the extent that payment was made
• If consequently exported – see Silke 31.22.1

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Second-hand goods (Example)

Issue 3
To equip the first floor for overnight residents, the company will
purchase second-hand furniture from:
(a) Non-vendors by advertising in the local newspaper. All
furniture must be delivered by 30 September 2022 and will
be paid for end of November 2022.
(b) Large furniture retailers (vendors for VAT purposes). This
furniture will comprise of repossessed furniture and will be
paid 90 days after the company takes delivery.
REQUIRED:
Indicate what the VAT implications will be for the company
regarding the purchase of the furniture. Also indicate when the
company will be entitled to claim the input tax.

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Solution – Second-hand goods:

Furniture acquired from non-vendors is “second-hand goods” (as
defined in s 1(1)) and the company will be entitled to a notional input tax
deduction to the extent that the goods are used to make taxable supplies.

This notional input tax = tax fraction x the lesser of the consideration in
money given or the open market value of the supply (section 1, definition
of input tax, sub- paragraph (b)).
The amount paid will equal the open market value. Even though the
company is registered on the invoice basis the notional input tax can only
be claimed once payment has been made (November/December 2022 tax
period) and only to the extent that payment has been made – section
16(3)(a)(ii)(aa).
The furniture acquired from retailers, even though second-hand, it is
supplied by vendors and will be subject to VAT. On receipt of a tax
invoice the company may claim the input tax (section 9(1)).

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Exports & S18(3) (Example - additional):

As a result of the advertisement for the purchase of second-hand
furniture from non-vendors (see issue 3 above) the company
purchased twenty extra beds (at a total cost of R16 000) from
non-vendors. Originally the intention was to keep them for future
use, but on 20 October 2022 they sold two beds to an employee
for R300 (excluding VAT) each (the market value being R800
each).
The other eighteen beds were exported directly to a non-related
buyer in China for a total consideration of R20 000 (also during
October 2022). These transactions have not yet been recorded.
REQUIRED:
Discuss the VAT implications of the above scenario. Where
applicable, show calculations and pay special attention to the tax
period (time of supply) and the value of supplies.

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Solution – Exports & s18(3):

• Output tax of R90 (15% x (R300 x 2)) must be declared in
the tax period ended 31 October 2022 for the beds sold to
the employee.
• Selling two beds below market value to an employee, results
in a fringe benefit (asset obtained at less than market value
(R800)).
• This is a fringe benefit which falls into the employee’s gross
income ito par (i) of the gross income definition and section
18(3) applies, there is no change in use adjustment under
s 18(1).
• The value of the fringe benefit is determined as the
difference between the consideration paid (R300 x 2 = R600)
and the market value (R16 000/20 = R800 x 2 = R1 600). A
deemed output tax of R130,43 (15/115 x ( R1 600 – R600))
must be paid by the company.
• The output tax should have been declared in the tax period
ended 31 October 2022.

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Solution – Exports & s18(3) (continued):

Exports
• Goods exported to an export country are zero-rated,
except when it consists of second-hand goods and a
deemed input tax was claimed, as in this case –
section 11 (proviso to sub-section (1)).
• The value of the supply is based on the consideration
paid for the goods by the exporter (seller), namely
R14 400 (R800 x 18). The company has to pay output
tax of R1 878,26 (15/115 x R14 400 [R800 x 18 beds]).

• The above output tax should have been declared in the

tax period ended 31 October 2022.

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Imports
Section 13 & 14
IMPORTS

GOODS SERVICES
(VAT payable by importer (VAT payable by recipient
of goods) of imported services)

NOT BLNS BLNS Entered for

Countries Countries storage in
For home customs & excise
consumption warehouse

69

69

Importation of goods
(Other than BLNS Countries – for home consumption)

• Time - date on Customs Bill of Entry (date entered

(cleared) for home consumption)
For home (domestic) consumption:
• Value -VAT at 15% [14% before 1 April 2018] calculated
on the total of: CDV will be provided
• The customs duty value plus in the questions
• 10% of customs value plus
• Any non-refundable customs duty and import
surcharges paid
• Example 31.8 in SILKE

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Importation of goods
(BLNS Countries)

• Time - date on which goods physically enter

RSA
• Value -VAT at 15% [14 before 1 April 2018%] of
“customs duty value” (no customs duty paid)

NOTE: VAT paid on importation is not “output tax” as

defined, it is VAT paid by the importer (purchaser)
whether vendor or not

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Imported services
(S 13 & 14)

■ Only levied if a non-resident supplier supplies a

service to a resident (whether a vendor or not), and
■ The service is not used to make taxable supplies
■ Recipient of service liable for VAT:
Time - Earliest date of :
▸ The issue of an invoice or
▸ The making of any payment by the recipient
Value – 15% [14%] x greater of:
▸ Value of consideration or
▸ Open market value
■ If imported service = remuneration  no VAT payable
■ CSARS v De Beers Consolidated Mines Limited (TL102)
■ Example 31.9 SILKE

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Fixed property transactions

Definition - Section 1

■ Acquired from (seller) vendor or non-vendor?

■ If seller is non-vendor or seller used property to make exempt
supplies - transfer duty payable by purchaser – notional input
tax can be claimed by purchaser to extent that taxable supplies are
made (commercial property)
■ REMEMBER: Residential accommodation – exempt supply
■ Refer to next slide for time and value rules
■ No VAT implication for seller (non-vendor – did not charge VAT)
■ If seller vendor VAT is payable – input tax can be claimed to extent
that taxable supplies are made (commercial property)

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Fixed property transactions (Silke 31.24)

• Output tax (if supplied by vendor):
• Supply of dwelling which was wholly (100%) used for residential
accommodation of an employee (fringe benefit) or wholly (100%) used
for residential letting (see definition) –> exempt supply.
• Other supply of fixed property (including residential properties
acquired/developed for the selling thereof and then sold by
purchaser/developer as it was not used for exempt supplies) –>
taxable supply (supplied in the furtherance of an enterprise).
• Value:
• 15/115 x consideration OR [14/114 x consideration prior to
01/04/2018]
• Never apportioned for partly taxable use, but may claim
s 16(3)(h) adjustment.
• Time:
• Output tax (for vendors registered on payment or invoice basis)
must be accounted for to the extent that payment is received (s
16(4)(a)(ii)).

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Fixed property transactions – purchased from

vendor (Silke 31.24)
• Input tax:
• Acquired from vendor:
• Input tax claimable
• Value: Consideration x 15/115 [14/114 prior 01/04/18]
x % taxable use
• Time: general rule - s 9(3)(d) earlier of payment or
registration, BUT s 16(3)(a)(iiA) – to the extent
payment was made (therefore ignore the date of
registration).

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Fixed property transactions – purchased from non-

vendor or vendor who made exempt supplies (Silke 31.24)
Second-hand goods acquired from non-vendor OR vendor that
used the property to make exempt supplies:
• notional / deemed input tax claimable. See par (b) of definition
of input tax in s 1.
• Value: 15/115 [14/114 prior 01/04/18] x lesser of cost price or
OMV x % taxable use.
• Time: general rule – s 9(3)(d) – earlier of payment or
registration,
BUT
• if registered payment basis –
s 16(3)(b)(i) –to extent of payment (registration date
irrelevant)
• if registered invoice basis
s 16(3)(a)(ii)(bb) only claimable once registered BUT only to
extent of payment s 16(3)(a)(ii)(aa)

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Example fixed property

Abby de Graaff is the financial director of Fun in the Sun (Pty) Ltd. Fun
in the Sun (Pty) Ltd is a resident company that manufactures suntan
products specifically formulated for the harsh African climate (classified
as a ‘process of manufacture’ by SARS), which are sold nationwide in
stores. Fun in the Sun (Pty) Ltd has a December year-end and is a
vendor for Value-Added Tax (VAT) purposes (that only makes taxable
supplies) with a one month tax period. All amounts exclude VAT, if
applicable, and all parties are registered VAT vendors, unless
specifically stated otherwise.
Abby needs to address the following query that the financial accountant
brought to her attention:

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Example fixed property (continued)

Query 1:
• Fun in the Sun (Pty) Ltd wants to buy a residential house (on the
Ballito beachfront, the property has an open market value of
R3.2 million) from Ms SPF (not a VAT vendor).
• The company wants to run a factory shop from the house.
• The sale will be concluded on 30 June 2022, on which date Fun in
the Sun (Pty) Ltd will pay a 10% deposit (calculated on the purchase
price of R3 million) into the attorney’s trust account.
• The selling contract stipulates that a further 40% will be payable to
Ms SPF on date of registration (31 July 2022), on which date the 10%
deposit will also be paid into Ms SPF’s personal bank account.
• The other 50% of the purchase price will be paid directly to Ms SPF
on 31 August 2022. Transfer duty of R146 000 is payable on the
transaction.

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REQUIRED Marks

Discuss all the VAT implications the purchase

7
of the property will have for Fun in the Sun
(Pty) Ltd. Show all your calculations and
address the value and time of the supply in
your solution. Round off to the nearest Rand.

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Solution – fixed property:

Purchase of the property:
• Fun in the Sun (Pty) Ltd will be buying a residential property (which it will
convert to offices) that it will utilise to make taxable supplies. The property is,
however, bought from a non-vendor and since it is second-hand property, a
notional input tax will be claimable (definition of “input tax” in section 1). (1)

• The notional input tax that Fun in the Sun (Pty) Ltd will be able to claim, will be
calculated as 15/115 x the lesser of cost (R300 000 (10% deposit) x 10 =
R3 000 000) or open market value (R3 200 000) of the fixed property (definition
of “input tax” in section 1). Thus, a total amount of R391 304 (15/115 x
R3 000 000) can be claimed as notional input tax. (2)

• The time of supply will be the earlier of any payment or date of registration of
the property (section 9(3)(d)). (1)

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Solution – fixed property (continued):

• The date of any payment will only be 31 July 2022, when the additional 40% of
the purchase price is being paid, since the deposit paid on 30 June 2022 will not
be seen as part of consideration, until it can be applied against the purchase
price (from 30 June until 31 July it was in a trust account and not applied against
the purchase consideration). (1)
• BUT notional input tax cannot be claimed before date of registration.
• Since this is the same as the date of registration (31 July 2022, the time of supply
will be 31 July 2022. (1)
• The notional input tax will only be claimable to the extent that payment of the
purchase consideration has been made and then only if the fixed property has
already been registered in the name of the vendor when the deduction of the
notional input tax is made (section 16(3)(a)(ii)(aa) read together with
section 16(3)(a)(ii)(bb)). (1)
• Fun in the Sun (Pty) Ltd will therefore be able to claim
R195 652 notional input tax (50% of the notional input tax of R391 304) in the
July 2022 tax period (10% deposit that is being paid over on the date of
registration and the 40% payable on 31 July 2022) and the other 50% of
R195 652 notional input tax in the August 2021 tax period, since the last 50% will
only be paid on 31 August 2022. (2)

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Adjustments (change in use):

Adjustments
Output Tax Input Tax
↓ taxable use ↑ taxable use
100% or less taxable → 0% Unclaimed input –
taxable Section 18(1) change in use
Section 16(3)(h)
Capital goods: ↓ taxable use
Section 18(2) Non-taxable → 100% or
less taxable Section 18(4)
Fringe benefits Section 18(3)
Going concern Section 18A Capital goods: ↑ taxable
use
Leasehold improvements Section 18(5)
Section 18C

Property dealer temporary

applies residential property
for rental purposes Section 18D 82

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Adjustments
Adjusted cost:
■ Definition – S1
■ Includes VAT
■ VAT rate (14% or 15%) applicable at the time of supply in terms of the
change in use
■ TL 103 pages 45 - 47 and Silke par 31.25 – 31.27

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Adjustments to OUTPUT tax

Change in use – Section 18
■ S 18(1):100% (or less) taxable  0% taxable, exempt, private use or input
tax would be denied - SILKE example 31.45
■ Time: date of transaction
■ Value: 15/115 [14/114 prior 1/04/18] X open MV x 100%
■ S 16(3)(h) adjustment?
■ Not if input tax has been denied for example motor car
■ S 18(2):Decrease in use of capital assets (but not to 0%)
■ Time: only done ANNUALLY (Year end)
■ Value: Formula: A X B X C
■ A = 15/115
■ B = lesser of adjusted cost (cost incl VAT) or OMV at year end
(cost must be ≥ R40 000 (excl VAT)
■ C = change in use (must be > 10%)
Four exceptions:
■ SILKE example 31.48
o Fringe benefits; and
■ S 18A, s 18(3), s 18B and s 18C. New! o Indemnity payments.
o S 18(2) adjustment
o Leasehold improvements
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OUTPUT tax adjustment - example

Company purchased building in 2021 y.o.a.
Financial year – Feb.
Consideration R1 500 000.
Used 60% for commercial accommodation (taxable supplies)
and 40% for residential accommodation (exempt supplies).

On 1/1/2022 (Feb 2022 y.o.a) the following change in use

takes place when the OMV is R2 000 000. The OMV on
28/2/2022 was R2 500 000. Calculate VAT effect for 2021
& 2022 if: S18(1) – no
apportionment
1. Change in use from 60% to 0% commercial of OUTPUT tax
accommodation use. adjustment
2. Change in use from 60% to 40% commercial
accommodation use.
S18(2) – apportion
OUTPUT tax
adjustment
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85

OUTPUT tax adjustment - solution

1. Change in use from 60% taxable to 0% taxable
use (↓ to 0%)
2021 Purchase of property (mixed supplies) Apportion Input tax claimed
R1 500 000 x 15/115 x 60% = R117 391 Input tax
For S18(1)
2022 Change in use to 0% taxable use B = OMV Output tax is NOT
Output tax Adjustment s18(1): A x B apportioned
15/115 x R2 000 000 x 100% = R260 870
But section 16(3)(h) adjustment (INPUT tax adjustment)
AxBxC
For S16(3)(h) B = lesser of
adjusted cost/OMV
15/115 x R1 500 000 x 40% = R78 261
Timing: 1/1/2022

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OUTPUT tax adjustment - solution

2. Change in use of capital use from 60% taxable use to
40% taxable use (↓ but not to 0%) Apportion Input
tax claimed
2021 Purchase of property (mixed supplies)
R1 500 000 x 15/115 x 60% = R117 391 Input tax
For S18(2)
B > R40 000 and %
2022 Change in use to 40% taxable use change is > 10%
B = < of adjusted
Adjustment s 18(2): A x B x C cost/OMV at end of YOA
Output tax
15/115 x R1 500 000 x 20% = R39 130
No s 16(3)(h)
adjustment
Output tax is apportioned
therefore no need to
Timing: End of YOA (28/2/2022) adjust input tax claimed

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87

OUTPUT tax adjustment – sections 18D,

9(13), 10(29) and 16(3)(o) (new sections)

• Section 18D applies when residential units that were built for
the sale thereof (taxable supply) by a developer are
temporarily applied for the letting and hiring thereof in
terms of an agreement or agreements (exempt supply
(section 12(c)).
• Temporarily applied = period of agreement or agreements
in total does not exceed 12 months.
• If the requirements of section 18D are met it is a deemed
supply - account for output tax:
• Section 9(13) – consideration = adjusted cost of construction,
extension or improvement of dwelling or portion thereof;
• Section 10(29) – account for output tax in the tax period that the
agreement for letting of dwelling came into effect;
• Calculation = consideration (adjusted cost) x 15/115

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OUTPUT tax adjustment – sections 18D,

9(13), 10(29) and 16(3)(o) (new sections)

Residential dwelling (property) sold during period of

temporarily letting:
• It is a taxable supply in the course or furtherance of vendor’s
enterprise.
• Time of supply earlier of:
• Date of registration, or
• Date on which any payment of consideration is made
• Consideration = amount of cash or if not paid in cash open
market value of property that was sold.
• Claim section 16(3)(o) input tax – as output tax levied twice (per
section 18D on change of use AND on sale of property) claim
input tax EQUAL to section 18D output tax.
• Refer SILKE 31.25.1

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OUTPUT tax adjustment – sections 18D and

18(1)

• If section 18D is not applicable as the change in

use is not temporarily applied ( not 12 months or
less) section 18(1) will be applicable:

■ S 18(1): - Property permanently applied for letting thereof (thus

period/s exceeding 12 months)
100% (or less) taxable  0% taxable, exempt, private use or input tax
would be denied
■ Time: date of transaction (date of signing agreement for letting of
dwelling)
■ Value: 15/115 [14/114 prior 1/04/18] X open MV x 100%
■ S 16(3)(o) adjustment
■ Refer SILKE 31.25 and 31.25.1

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SILKE - EXAMPLE 31.46

Mr Chill, a property developer, recently completed a residential
development in Pretoria. Due to market conditions Mr Chill is
unable to sell the residential development. Mr Chill is a
registered Category C VAT vendor.
(a) On 30 June2022, Mr Chill entered into a 12-month rental
period (1July 2022 to 30 June 2023) iro the property. On this
date the OMV of the property was R2 500 000 and the
adjusted cost price was R1 840 000.

On 5 January 2023 Mr Chill sold the property to an

independent party at its market value of R3 105 000. The
amount was paid in cash on the of registration. The property
was registered on 28 February 2023.
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SILKE - EXAMPLE 31.46

• Section 18D applies as Mr Chill is a developer of
residential property and the change in use is temporary
(12-month contract thus does not exceed 12 months).
• Output tax = R1 840 000 (adjusted cost (section 10(29)) x
15/115 = R240 000
• Time of supply = 1 July 2022 (section 9(13) – date that
agreement came into effect, therefore July VAT period.
• No VAT on rental income (exempt supply (section 12(c))
• Subsequent disposal
• Disposal in course of furtherance of enterprise
• Output tax = R3 105 000 (consideration) x 15/115 = R405 000
• Time of supply = earlier of payment or registration = same
date = 28 February 2023
• Section 16(3)(o) input tax = R1 840 000 (adjusted cost) x
15/115 = R240 000 (same as section 18D adjustment –
2022/02/19
reversal of original output tax) 92

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SILKE - EXAMPLE 31.46

Mr Chill, a property developer, recently completed a
residential development in Pretoria. Due to market
conditions Mr Chill is unable to sell the residential
development. Mr Chill is a registered Category C VAT
vendor.

(b) On 30 June2022, Mr Chill entered into a 12-month

rental period (1July 2022 to 30 June 2023) iro the
property. On this date the OMV of the property was R2
500 000 and the adjusted cost price was R1 840 000.

On 30 June 2023 Mr Chill (at the end of the rental period)

decided to sell the property and immediately put it on the
market for the selling thereof
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SILKE - EXAMPLE 31.46

• Section 18D applies as Mr Chill is a developer of
residential property and the change in use is temporary
(12-month contract thus does not exceed 12 months).
• Output tax = R1 840 000 (adjusted cost (section 10(29)) x
15/115 = R240 000
• Time of supply = 1 July 2022 (section 9(13) – date that
agreement came into effect, therefore July VAT period.
• No VAT on rental income (exempt supply (section 12(c))
• Subsequent intention to sell the property
• No output tax on date of change of intention as no supply
took place
• Section 16(3)(o) input tax = R1 840 000 (adjusted cost) x
15/115 = R240 000 (same as section 18D adjustment –
reversal of output tax accounted for on temporarily applying
property to supply residential accommodation)
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SILKE - EXAMPLE 31.46

Mr Chill, a property developer, recently completed a
residential development in Pretoria. Due to market
conditions Mr Chill is unable to sell the residential
development. Mr Chill is a registered Category C VAT
vendor.
(c) On 30 June2022, Mr Chill entered into a 12-month
rental period (1July 2022 to 30 June 2023) iro the
property. On this date the OMV of the property was R2
500 000 and the adjusted cost price was R1 840 000.

On termination of the agreement Mr Chill decided to take

the property off the market and to rent it out permanently.
The open market value of the property on 1 July 2023
was R3 450 000.
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SILKE - EXAMPLE 31.46

• Section 18D applies as Mr Chill is a developer of residential
property and the change in use is temporary (12-month
contract thus does not exceed 12 months).
• Output tax = R1 840 000 (adjusted cost (section 10(29)) x 15/115 =
R240 000
• Time of supply = 1 July 2022 (section 9(13) – date that agreement
came into effect, therefore July VAT period.
• No VAT on rental income (exempt supply (section 12(c))
• Subsequent permanent intention to rent out the property
• There is a permanent change in use on 1 July 2023 (section
18(1))
• Output tax = R3 450 000 (open market value on date of
permanent change in use) x 15/115 = R450 000
• Time of supply = date of change in intention – 1 July 2023.
• Section 16(3)(o) input tax = R1 840 000 (adjusted cost) x 15/115 =
R240 000 (same as section 18D adjustment – reversal of adjustment
when temporarily change in use was made)
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Adjustments to INPUT tax

Change in use – Section 18
• S 18(4): Non-taxable → ≤ 100% taxable use
• Formula: A x B x C x D
• Example 31.47 in SILKE
• S 18(5): Increase in use of capital goods
 opposite of s 18(2) on slide 84
• Section 16(3)(h): unclaimed portion of input tax with change
in use (s 18(1)) (Example 31.45 in SILKE)

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INPUT tax adjustment - solution

2. Change in use of capital use from 60% taxable use to
80% taxable use (↑ but not to 100%) Apportion
Input tax
2021 Purchase of property (mixed supplies) claimed
R1 500 000 x 15/115 x 60% = R117 391 Input tax

2022 Change in use to 80% taxable use

Adjustment s 18(5): A x B x C For S18(5)
B = < adjusted cost/ open market value

15/115 x R1 500 000 x 20% = R39 130 Input tax

% taxable use has

Timing: End of YOA (28/2/2022) increased

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VAT adjustment on goods donated

S18(1) adjustment
• Goods acquired wholly or partly for the making of taxable supplies
and then applied wholly for private or exempt or non-taxable
purposes
• If the goods (or services) are donated and no s 18A income tax
deduction can be obtained, then s 18(1) adjustment needs to be
done.
• Output tax must be levied ito s 18(1)
• A x B where A = 15/115; B = open market value

• If the goods are donated and

• a s 18A income tax deduction can be obtained; or
• donated ito CSR programme; or
• Advertising/marketing benefit can be obtained; then
• NO s 18(1) ADJUSTMENT, as it is a supply with Rnil value

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99

Adjustments to OUTPUT tax

Leasehold improvements – S8(29) and 18C

■ Leasehold improvements made by lessee for a consideration –
normal VAT rules apply:
■ Lessee may claim input tax on expenses incurred (for taxable supplies)
■ Supply to lessor – output tax might be payable
■ Leasehold improvements made by lessee for no consideration –
deemed supply (s8(29))
■ LESSEE
■ Lessee may claim input tax for the supply made for no consideration
■ To the extent that improvements are made for no consideration
■ Not wholly (100%) erected to make taxable supplies
■ Value of the deemed supply (lessee) – Nil (s10(28))

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Adjustments to OUTPUT tax

Leasehold improvements – S8(29) and 18C
■ LESSOR: s18C – Output tax adjustment by lessor (no consideration
is paid to the lessee for the improvements)
■ Value: Formula A x B x C
■ A = 15/115
■ B = stipulated amount for improvements, if no amount,
then Open Market Value of improvements
■ C = % non-taxable use or input tax denied
■ Silke example 31.53
■ Time of supply – on completion of leasehold improvements

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101

Leasehold improvements – S8(29) and 18C

SILKE Example 31.53 (Adapted) - Leasehold improvements
Vendor A and Vendor B both only make taxable supplies.
Vendor A (Lessee) leases a property from Vendor B (Lessor).
Vendor A (Lessee) requires additional facilities to effectively conduct
its enterprise and erect a building for an amount of R1 150 000 (VAT
inclusive) on the leasehold property. The building is completed on
30 June 2022 and has an Open Market Value of R2 000 000 at
completion date.
Explain the VAT consequences of the above for Vendor A (Lessee)
and Vendor B (Lessor) if:
(a) Vendor A (Lessee) erects leasehold improvements and Vendor B
(Lessor) pays Vendor A (Lessee) R1 150 000 for the leasehold
improvements on 30 June 2022.
(b) Vendor A (Lessee) makes improvements on the leasehold
property and receives no consideration from Vendor B (Lessor) in
respect of the leasehold improvements.

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Leasehold improvements – S8(29) and 18C

SILKE Example 31.53 (Adapted) - Leasehold improvements
SOLUTION
a) Normal VAT rules apply
Vendor A (Lessee)
Input tax (normal VAT rules)................................. (R150 000)
Value of supply for improvements (goods/services supplied to Lessee to
construct) R1 150 000 x 15/115 = R150 000
Output tax (normal VAT rules)................................R150 000
Value of supply to Lessor (Lessor paid (consideration) for the leasehold
improvements) R1 150 000 x 15/115
Vendor B (Lessor)
Input tax (normal VAT rules) ................................. (R150 000)
Lessor acquires the leasehold improvements from Lessee for R1 150 000
and can claim R150 000 as input tax

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103

Leasehold improvements – S8(29) and 18C

SILKE Example 31.53 (Adapted) - Leasehold
improvements SOLUTION
b) Deemed supply s8(29) LESSEE
Vendor A (Lessee)
Input tax (normal VAT rules)................................. (R150 000)
Value of supply for improvements (goods/services supplied to Lessee to
construct) R1 150 000 x 15/115 = R150 000
Output tax (s 8(29) & s 10 (28))................................R Nil
Lessee not obliged to make any improvements on the leasehold property and
receives no consideration from Lessor in respect of the leasehold
improvements
Lessee can still claim input tax of R150 000 on the expenses incurred on the
leasehold improvements.
The leasehold improvements are deemed to be a supply of goods in the
course of the enterprise of Lessee (s 8(29)).
The value of the deemed supply is Rnil (s 10(28)) and no output tax has to be
accounted for.

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Leasehold improvements – S8(29) and 18C

SILKE Example 31.53 (Adapted) - Leasehold
improvements SOLUTION
b) Deemed supply s8(29) LESSOR
Vendor B (Lessor)
Input tax (normal VAT rules)............................................... (R Nil)
Lessor does not incur any expenses regarding the leasehold improvements
and can therefore not claim any input tax
Output tax (deemed supply / adjustment ito s 18C)......... (R Nil)
There is a deemed supply of the leasehold improvements erected on the
leasehold property of the lessor.
This deemed supply is A × B × C, where;
A = 15/115,
B = R2 million (amount stipulated in agreement, or if no amount then the open
market value of the improvements) and
C = 0% (percentage non-taxable use or where input would have been denied)
Therefore, 15/115 × R2 million × 0% = Rnil.

Used 100% for taxable supplies

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105

Leasehold improvements – S8(29) and 18C

SILKE Example 31.53 (Adapted) - Leasehold improvements LESSEE
SOLUTION
b) Deemed supply s8(29) What if building used 60% taxable supplies
and 40% exempt supplies by LESSEE & LESSOR
Vendor A (Lessee)
Input tax (normal VAT rules)................................. (R90 000)
Value of supply for improvements (goods/services supplied to Lessee to
construct) R1 150 000 x 15/115 = R150 000 x 60% = R90 000
Output tax (s 8(29) & s 10(28))................................R Nil
Lessee not obliged to make any improvements on the leasehold property and
receives no consideration from Lessor in respect of the leasehold
improvements
Lessee claims input tax of R90 000 on the expenses incurred on the
leasehold improvements (to the extent used to make taxable supplies
60%).
The leasehold improvements are deemed to be a supply of goods in the
course of the enterprise of Lessee (s 8(29)).
The value of the deemed supply is Rnil (s 10(28)) and no output tax has to
be accounted for.

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Leasehold improvements – S8(29) and 18C

SILKE Example 31.53 (Adapted) - Leasehold improvements LESSOR
SOLUTION
What if building used 60% taxable supplies
b) Adjustment s18C and 40% exempt supplies by LESSEE & LESSOR
Vendor B (Lessor)
Input tax (normal VAT rules)......................................... (R Nil)
Lessor does not incur any expenses regarding the leasehold improvements
and can therefore not claim any input tax
Output tax (deemed supply / adjustment ito s 18C)
@R2 000 000 x 15/115 x 40%........................................ R104 348
There is a deemed supply of the leasehold improvements erected on the
leasehold property of the lessor.
This deemed supply is A × B × C, where;
A = 15/115,
B = R2 million (amount stipulated in agreement, or if no amount then the open
market value of the improvements) and
C = 40% (percentage non-taxable use/ where input would have been denied)
Therefore, 15/115 × R2 million × 40% = R104 348 OUTPUT.

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107

Leasehold improvements – S8(29) and 18C

SILKE Example 31.53 (Adapted) - Leasehold improvements
SOLUTION
What if building used 60% taxable supplies
b) Adjustment s18C and 40% exempt supplies by LESSEE & LESSOR
NOTE:
The objective of the adjustment is to equalise the lessor’s VAT
position – As if he had effected the leasehold improvements himself.
If the lessor effected the leasehold improvements, the lessor would not
have been entitled to input VAT on:
1. improvements used for exempt purposes for which an input tax
would usually be denied (for example entertainment), OR
2. to the extent that the lessor uses it for making non-taxable supplies
(for example residential accommodation).

Timing – leasehold improvements are completed

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Case law (TL102)

Remember to study the principles of these
court cases:

• Wenco International Mining Systems Ltd v CSARS

• CSARS v British Airways Plc

• CSARS v Respublica (Pty) Ltd

• Consol Glass (Pty) Ltd v CSARS

• CSARS v Stellenbosch Farmers‘ Winery Ltd

• Master Currency (Pty) Ltd v CSARS

• XO Africa Safaris CC v CSARS

• CSARS v De Beers Consolidated Mines Ltd
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109

Define Tomorrow.

110