LECTURERS

• Lizanne Barnard
C Ring 724
011 559 4150
lbarnard@uj.ac.za
• Siphamandla Makhaya
C Ring 730
011 559 3451
smakhaya@uj.ac.za
• Ms Nqobile Nzimande
C Ring 7 main passage
accountancy10@uj.ac.za
 Value Added Tax
Lecture 1
HAUPT Chapter 30
VAT Act 89 of 1991 – only references in
module
 Tax 2 Objective test
• How do you calculate VAT payable or refundable
• When is VAT accounted for under the payment basis
• By when must the VAT return and payment be made to SARS
True or false
• Zero rated supplies have no VAT input or output?
• Goods include electricity
• You must register as a vendor if your taxable supplies are R900 000
• If a vendor charges all his customers VAT at zero rate, he will not be entitled
to an input tax deduction
• A vendor who incurs expenditure on entertainment will not be entitled to a
deduction for VAT paid on the expenditure.
• A motor car as defined excludes a delivery vehicle.
 Introduction
VAT = Value Added Tax
Indirect tax
Levied ito Value Added Tax Act 89 of 1991
VAT levied @ 15%
VAT = INCLUSIVE tax
 How do we CALCULATE VAT?
Section 7(1)(a)
OUTPUT VAT Sec 1 DEF XXX
•Standard rated supplies
•Zero rated supplies
Minus

INPUT VAT Sec 1 DEF (XX)

•Goods & services

VAT payable/(refundable) XXX

 OUTPUT vs INPUT
OUTPUT INPUT
Section 1 definition Section 1 definition
SELL g/s thus goes OUT BUY g/s thus comes
of enterprise INTO enterprise

SALE = INCOME = + BUY = EXPENSE = -

CHARGED INCURRED
 INCL or EXCL VAT
Amount INCLUDES VAT
• Multiply with TAX FRACTION [15/115]

Amount EXCLUDES VAT

• Multiply with 15%

NB  READ to identify the above

 Definitions
Section 1
1. Supply
2. Vendor
3. Goods
4. Services
5. Enterprise
6. Person
7. Connected person
8. Motor car
 SUPPLIES
TAXABLE supplies EXEMPT supplies

Standard rate Zero-rated

No VAT applicable

15% 0%

Listed in
All other Section 12
Listed in
supplies
Section 11
 VENDOR
Any person required to be registered under
the VAT Act

Registration requirements – SELF STUDY

Compulsory Voluntary
 Goods/Services
GOODS SERVICES
Corporeal movable things Granting, cession or surrender of
rights
Fixed Property Making available of facility or
advantage
Real rights in fixed property.. Anything done or to be done

EXCLUDED:
•Money
•Revenue Stamps
•Rights arising from mortgage
bonds or pledge of goods
 in course or furtherance of ENTERPRISE

• Carried on CONTINUOUSLY or regularly

• In Republic/partly in republic
• Whether or not for profit
 in course or furtherance of enterprise
Excluded from definition of enterprise:
• Services supplied by employee to employer
• Hobbies
• Exempt supplies
• Supplies by branches or main businesses situated
OUTSIDE RSA
 VALUE of supply
(GENERAL RULE)
VALUE + VAT = CONSIDERATION

Market value??
Price quoted??

KNOW HOW TO GET VAT amount

 TIME of Supply
(general rule)

EARLIER of
– Date of invoice
– Date of payment

Specific rules OVERRULE general rules

 VAT
Lecture 2
 SUPPLIES
TAXABLE supplies EXEMPT supplies

Standard rate Zero-rated

No VAT applicable

15% 0%

Listed in
All other Section 12
Listed in
supplies
Section 11
 ZERO-RATED supplies
VAT charged @ 0% (taxable but at 0%)

can still claim input VAT - WHEN??

SECTION 11 lists all ZERO rated supplies

 Zero rated
section 11
• Export of goods (take note – no detail)
• Sale of a going concern
• Fuel levy goods (petrol and diesel)
• Basic foodstuffs (brown bread, milk, eggs, fresh fruit & veg) – PART B Shedule 2
• Kruger Rands
• Paraffin use for fuel ….
• Transport of passengers or goods to/from an export country
• Female sanitary products
• Municipal rates levied by municipality

AND OTHER READ S11

 Zero rated – GOING CONCERN – section
11(e) VAT ACT
1. Both parties REGISTERED for VAT
2. Agree in writing 
3. business = going concern & income earning activity on
date of transfer
4. All assets necessary to carry on enterprise is part of sale
5. Contract states VAT @ 0%
 EXEMPT supplies
NO OUTPUT VAT is levied thus NO input tax may be
claimed.

Section 12 lists all Exempt supplies

 EXEMPT SUPPLIES
Section 12
• Financial services (interest) – understand difference between fee and service
• Supply by an association not for gain of donated goods
• Letting of residential accommodation (not selling)
• Accommodation supplied by employer to employee
• Transport of fare-paying passengers and personal effects by rail / road (e.g. taxis) (if not zero rated)
• Educational services
• Trade union subscriptions
• Crèche or after-school care centre
 Financial services = exempt supply
SERVICE FEE
EXEMPT TAXABLE
ISSUE OF DEBT SECURITY Additional CHARGE to provide the service
ISSUE OF EQUITY SECURITY
ISSUE OF LOANS

• INTEREST???
 Residential accommodation = exempt

What is residential accommodation??

– Dwelling  structure/building…residence
Letting/hiring  NOT SALE
Lodge & boarding by EMPLOYER to employee
– Employee entitled due to employment
– Employer operates MAINLY for employees rather than profit
 Commercial accommodation = Taxable

What is commercial accommodation?

LODGE/BOARDING + domestic g/s
Regularly

Domestic g&s??
 Commercial accommodation - TAXABLE
Lodge/boarding and ANNUAL supply
> R120 000
Value:
Output
Short stays = 28 days or less  FULL
Long stays = > 28 days – UNBROKEN – 60% of output
from day 1
 Residential v Commercial
Residential Commercial

EXEMPT supply STANDARD supply

Main residence (living) Lodge or lodge & boarding

Employer to employee Old age home
hospice
Rent/lease NOT buy <=28 days- TOTAL output

> 28 days - 60% output

Example: Commercial and Residential
accommodation
• Jo is a property magnate and vendor
• During the current VAT PERIOD Jo earned the following
amounts:
– Letting of townhouses R42 000
– Short term stay (<28 days) in bed and
breakfast hotels (incl VAT) R15 000
– Board and lodging in boarding houses
(>28 days, excl VAT) R30
000
• Calculate the output tax i.r.o. the income earned (round
of your calculations to the nearest Rand)
Source: Silke
 Solution

• Letting of a townhouse  EXEMPT Residential

accommodation

• Bed and breakfast  Commercial  15 000 x

15/115 = 1 957

• Board and lodging  LT commercial  30 000 x

15% x 60% = 2 700
 Commercial accommodation
‘Perfect Get Away’ is a very popular hotel where guests
regular visit during vacations and business trips. Their
annual revenue amounts to R250 000.
The manager is getting confused on how to account for the
VAT on the supply of this accommodation.
Which of the following statements is
correct?
VAT input must be claimed in full and VAT output
is paid over to SARS in full

60% of the VAT input is claimed and 60% of the

VAT output is paid over to SARS calculated on
the all-inclusive rate as well as any extra room
charges provided for

VAT input is claimed in full and 60% of the VAT

output is paid over to SARS for guests staying
for an unbroken period of more than 28 days
only for the all inclusive rate

VAT input is claimed in full and 60% of the VAT

output is paid over to SARS for guests staying
for an unbroken period of more than 28 days
only for the all inclusive rate as well as the extra
room charges provided for
 Transport of fare paying passengers =
EXEMPT
Bus, taxi, train
Transporting of PEOPLE
Must pay FARE

??? – AIR TRAVEL in SA/OUT SA

 DEEMED supplies
DEEMED supplies  may not meet the definition of a
supply…
1. Ceasing to be vendor
2. Fringe benefits – to be covered in 2nd sem
3. Indemnity payments
4. Other – see module
 DEEMED supplies
Ceases to be a vendor
– Output tax levied on all goods & services still owned on day person
ceases to be vendor
– NOT applicable if it is due to his death or sequestration and the trust or
executor is carrying on the enterprise..
– VALUE of supplies  LESSER of
• Cost at acquisition/manufacture…..
• Open market value on date vendor ceases to be vendor
– TIME of supply:
• Immediately before vendor ceases to be vendor
 Deemed supply:
• Indemnity payments
• Payment received from short-term insurance
contract (related to taxable supplies) = deemed
supply
• OUTPUT VAT payable
• WHY?

value of the supply = 15/115 x consideration received

Time supply – when insurance payment is received
 Deemed supply: Indemnity payments

NO deemed supply where:

– payments not related to taxable supplies
or
– Reinstatement of goods
 Example 1: Indemnity payment
• Manufacturers Ltd recently suffered a robbery at
its premises
• The insurance company reimbursed them in cash
as follows:
– For delivery vehicle stolen R132 000
– For passenger vehicle stolen R100 000
– For microwave oven in canteen
stolen R 2
500
• Calculate the output tax in respect of the
insurance payment received
Source: Silke
 Solution
OUTPUT VAT

• Delivery – 132 000 x 15/115 = 17 217

• Passenger – Motor - No output

• Microwave – Entertainment - No output

 Example: Indemnity payment –
taxable and exempt use
• Boston bank acquired insurance cover for a
computer of which 40% was used for taxable
purposes and 60% for exempt supplies
• The computer was stolen and the bank received
an indemnity payment of R14 230 from its
insurer
• Calculate Boston bank’s output tax liability
(round off your calculations to the nearest rand)
 Solution
OUTPUT VAT

14 230 x 15/115 x 40% = R742

 DEEMED supplies
FRINGE BENEFITS
REFER BACK IN 2nd SEMESTER AS PART OF
INDIVIDUALS
Provision of fringe benefit by a registered vendor to
employees is DEEMED a supply of goods/services
ONLY applicable to FRINGE benefits per SEVENTH
SCHEDULE in Income Tax Act
VAT LECTURE

FUNNIES!!! 1
 Rental agreements
Rental agreement
Letting of goods (incl. fixed property),
– Excluding lease referred to in instalment credit agreement definition
– Includes an operating lease

Time and value of supply

Rental agreement
• Time = Earlier of: Payment due or received
• Value = Rental considerations
 Instalment credit agreement
Instalment credit agreement
• corporeal movable goods or machinery or plant (whether movable/immovable)
are supplied under a qualifying sale or lease …
– includes suspensive sales and finance leases

Instalment SALE agreement Instalment LEASE agreement 

goods sold and paid over instalments Rent = money paid over period
Include finance charges Include finance charges
Total payment > cash value Total payable > cash value

Owner on day 1 Possession at least 12 months

Risks….

Owner at the end

 Instalment credit agreements

• Time = Earlier of: Delivery of the goods or payment

• Value = Cash value EXCLUDING finance charges
Rental agreements and instalment credit agreements

Instalment credit Rental agreement

agreement
LESSOR LESSEE LESSOR LESSEE
OUTPUT INPUT on OUTPUT INPUT on
on CASH CASH cost on rental rental
cost
@ @ Each rental Each rental
commencement commencement
of lease of lease
 Example: Instalment credit agreement
(financial lease)
• CAR enters into a financial lease on 15 May of the current
tax year for the lease of a ‘motor car’ to a clothing
manufacturer, as follows:
– Cost of motor car R97 391
– VAT R14 609
R112 000
– Finance charges R39 200
R151 200

• The agreement states that 36 monthly instalments of

R4 200 (incl. VAT) are payable from 1 July 200x until 1
June 200y. The motor car was delivered on 1 June 200x.
Source: Silke
 Solution
VAT implication for Seller

OUTPUT 112 000 x 15/115 = 14 609  1 June

Can purchaser claim input?

NO input  MOTOR CAR as defined

WHAT ABOUT FINANCE CHARGES

EXEMPT supply = FINANCIAL SERVICES

 Example: Instalment ct agreement (suspensive sale
agreement)
• Assume the same information as in the above example, except it is now a
delivery van acquired under a suspensive sale agreement, which provides
for a deposit of R14 000 payable on 15 May of the current tax year
• The monthly instalments are R3 675 and finance charges totalling R34 300
will be paid over the 36-month period
Source: Silke
 Solution

VAT implication for SELLER

OUTPUT 112 000 x 15/115 = 14 609  15 May

VAT for manufacture

YES : Delivery van R14 609 (full taxable supplies)

WHAT ABOUT FINANCE CHARGES

EXEMPT supply = FINANCIAL SERVICES

 ICA vs rental agreement
Gossip Ltd purchased a new delivery vehicle – not a motor
as defined from XO Ltd during March. Gossip Ltd will pay
for the car via monthly instalments of
R5 000 over a period of 5 years.
The cash cost of this car is R200 000 (including VAT).
Total interest on the transaction amounts to
R10 000.
What amount of VAT input can Gossip Ltd claim in its
current VAT cycle of 2 months?

(200 000 x 15/115) x 2/60 = 870

(200 000 x 15%) x 2/60 = 1 000

200 000 x 15/115 = 26 087

200 000 x15% = 30 000

 Connected persons
• DEFINITION!!!! For VAT
SEM 1
– Company
– CC
SEM 2
– Natural person
– Trust
Criteria for special connected person rule
• SELL for
– < MV or NO consideration
And
– Buyer can NOT claim full INPUT VAT (WHEN??)
THEN
VALUE of supply = MV
•TIME of supply =
•If goods are removed: time of removal;
•If services are performed: time they are performed; OR
•Invoice or payment date if earlier than the above
 Example: Value of supply to
connected persons
• Alpha (Pty) Ltd and Bheta (Pty) Ltd are
connected persons
• Alpha (Pty) Ltd sells trading stock valued
at
R10 000 to Bheta (Pty) Ltd
• Bheta (Pty) Ltd only paid an amount of R4
000 for this trading stock
• Bheta (Pty) Ltd is not allowed a full input
tax deduction (only 60% taxable supplies)
• Explain the VAT consequences of the
 Solution
• Alpha

OUTPUT on MV = 10 000 x 15/115 = 1 304

• Bheta

INPUT on consideration paid =

4 000 x 15/115 x 60% = 313
 Connected Persons
Kitten Ltd sold a desk to Puppy Ltd during April, a company
in which they own 90% of the shares. Kitten Ltd charged an
amount of R1 200 for the desk while other retailers in the
country would have charged R1 500.
Puppy Ltd and Kitten Ltd are both registered VAT vendors
who make 90% and 100% taxable supplies respectively.
What VAT output must Kitten Ltd pay over to SARS?

1 200 X 15/115 = 157

NO VAT output needs to be paid over

1 500 x 15/115 x 90% = 176

1 500 x 15/115 = 196

What VAT input can Puppy Ltd claim back from
SARS?
1 200 X 15/115 = 157

1 500 x 15/100 x 90% = 203

1 500 x 15/115 x 90% = 176

1 200 x 15/115 x 90% = 141

What VAT output would Kitten Ltd have to pay if
Puppy Ltd was a 100% VAT vendor?
1 200 X 15/115 = 157

1 200 x 15/115 x 90% = 141

1 500 x 15/115 x 90% = 176

1 500 x 15/115 = 196

VAT LECTURE
FUNNIES!!! continued
INPUT VAT
G/s acquired for purpose of making taxable supplies:
• Wholly  95% or more
• Full input tax credit may be claimed IF TAX INVOICE is available
• Partly  less than 95%
• Apportionment of input tax in relation to TAXABLE supplies
How do you apportion input
• Turnover method

Taxable supplies/total supplies

= % taxable supplies
APPORTIONMENT OF VAT
Glee Ltd is a company that have 2 trades:
DEPARTMENT FI - invests in shares, futures, options and derivatives.
This makes up 60% of Glee’s business
DEPARTMENT C deals with selling computers to investors. This makes
up 40% of Glee’s business
Glee Ltd now purchased a truck for the drivers – not a motor car as
defined.
How much VAT input can they claim if the truck
will be used by the driver in the Department C?

100%

Exempt

40%
How much VAT input can they claim if the truck
will be used by the driver in the Department FI?

100%

Exempt

40%
How much VAT input can they claim if the truck
will be used by the drivers in both departments?

100%

Exempt

40%
DENIED INPUT

ENTERTAINMENT

MOTOR vehicles

Club subscriptions
VAT LECTURE

FUNNIES!!! continued
 DEEMED/NOTIONAL INPUT

SECOND HAND GOODS

• Acquired from NON vendor
• who is RESIDENT in RSA
• goods are situated IN RSA

Input tax calculated at LESSER of

• Purchase price
• Open market value
Deemed VAT may be claimed to extent
PAYMENT was made….
 Fixed property
Goods – INCLUDES fixed property
• WHEN can INPUT be claimed?

• TIME of supply – General rule (< pmt/registration date)

• VALUE of supply – Extent PMT is made

 2nd hand FIXED property – NOTIONAL INPUT
• TRANSFER DUTY? – s 2 of Transfer duty Act – calculated
on purchase price of property
Value of property R Rate

R0 – R1 100 000 0%

R1 100 001 – R1 512 500 3% of the value above R1 000 000

R1 512 501 – R2 117 500 R12 375 + 6% of the value above R1 512 500

R2 117 500 – R2 722 500 R48 675 + 8% of the value above R2 117 500

R2 722 500 – R12 100 000 R97 075 + 11% of the value above R2 722 500

R12 100 001 and above R1 128 600 + 13% of the value above R12 100 000

• Value
– < cost/MV multiplied by TAX FRACTION
• Time
– To the extent of payment made BUT transfer must have been
registered
 Example
Venter & Naidoo CC purchased a house from a non vendor
for a consideration equal to the MV of R350 000. They will
use the house for making taxable supplies.

When and to what extent may input be claimed?

Silke
 Answer
• Second hand goods, Fixed property in SA
• NON vendor in SA
• DEEMED input
• 15/115 x R350 000
• R45 652
• Transfer Duty??
Mr Seacrest sold his house to a non-registered vendor Idols
Ltd. The selling price that was agreed upon was R2 500
000.
What will the VAT implications be for Idols Ltd?

No VAT implications

Claim notional VAT input as purchased 2nd

hand from a non-vendor

Transfer duty must be paid and no VAT input

can be claimed
• An old man John Lennon lived in his home for many
years. He later decided he wanted to move out of his
house and purchase a smaller cottage for himself. He
sold his house to a company named Guitar Hero – a
registered VAT vendor - they will use the house for their
trade.
What will the VAT and Transfer Duty implications be
for the buyer?

As the house was purchased from a non-vendor,

there will be no VAT implications

As the house was used previously for private

purposes, the house is still considered to be new so
no notional VAT can be claimed on the purchase
price

As the house was purchased from a non-vendor, the

company does not pay VAT and therefore must pay
transfer duty. They can then claim notional VAT as
the house is purchased 2nd hand from a non-vendor

As the house was purchased 2nd hand from a non-

vendor, notional VAT can be claimed and therefore
There is ALWAYS a way around EVERY
obstacle
BUT
You need to CARE enough to find it…

What is the way around THIS ONE?? 

Go THROUGH it not AROUND it – find

solutions not more problems
YOU CAN DO IT!!