Page 374 - Juta's Indirect Tax

IN 39 (2) VaLue-added tax act: InterPretatIOn nOtes IN 39 (2)
On or after 1 April 2005
Same as the above, except that the payment constitutes a ‘grant’ and is zero-rated in terms of section 8 (5A) read together with section 11 (2) (t). If the payment was included in the municipality’s ‘equitable share’ grant in terms of the DOR Act, it will also qualify for the zero rate in terms of these provisions.
Example 8 – Gratuitous payment by a municipality to a welfare organisation
A municipality pays an amount of money to a welfare organisation (vendor) to assist members of the local rural community to acquire land and teach them about sustainable development.
Before1 April 2005
The welfare organisation will be making taxable supplies to persons other than the municipality, and it will be deemed to make a supply of services to that municipality in terms of section 8 (5) in respect of the payment that it receives. However, as the payment is not made by a public authority, it cannot be a ‘transfer payment’, and hence it cannot be zero-rated in terms of section 11 (2) (p). The payment does, however, qualify to be zero-rated in terms of section 11 (2) (n) as the recipient is a ‘welfare organisation’ and the payment is for the carrying on of a welfare activity.
On or after1 April 2005
Same as the above, except that a welfare organisation is regarded as a ‘designated entity’. The payment also constitutes a ‘grant’ and is zero-rated in terms of section 8 (5) read together with section 11 (2) (n) (as amended).
Example 9 – Disaster relief payments
National Treasury is instructed by Parliament to make available emergency funds to be paid to certain farmers in the Free State and Northern Cape regions as drought subsidies to replace damaged or lost standing crops and livestock. Payments are made available via the Department of Rural Development and Land Reform (DRDLR) (formerly known as the Department of Land Affairs) on application.
Before 1 April 2005
Any farmer (vendor) who applies for and receives the subsidy (grant-in-aid) will be deemed in terms of section 8 (5) to make a supply to DRDLR since the goods lost or damaged were used for taxable supplies made by the farmers and the DRDLR does not receive any goods or services in return for the subsidy payment. As the subsidy is a ‘transfer payment’, it will qualify for zero-rating in the hands of the farmer (vendor). There is no VAT implication for recipients who are not vendors.
On or after1 April 2005
Same as the above, except that the payment constitutes a ‘grant’ and is zero-rated in terms of section 8 (5A) read together with section 11 (2) (t) (provided that the farming enterprise is not a ‘designated entity’).
On or after 7 February2007
If the disaster relief was in the form of compensation paid by a public authority in terms of section 19 of the Animal Diseases Act 35 of 1984 for the supply of a ‘controlled animal or thing’ as de ned in that Act to that public authority, the supply of the affected animals is subject to VAT at the zero rate in terms of section 11 (1) (r).
Example 10 – Infrastructure grant paid to a municipality for roads and street lighting
The Department of Transport (DoT) makes a payment to a municipality to provide public roads and street lighting for the general public in the municipality’s jurisdiction.
Before 1 April 2005
The supply of public roads and street lighting by a municipality is usually funded out of the municipality’s rates account. Such supplies were therefore not normally considered to be taxable as contemplated in paragraph (c) (iv) of the de nition of ‘enterprise’ (as it read at the time). No deemed supply would therefore have arisen between the municipality and DoT in terms of section 8 (5) in regard to that payment and it would not have been zero-rated in terms of section 11 (2) (p), even though it is a ‘transfer payment’.
It follows that the municipality cannot deduct any input tax on any goods or services acquired in order to provide the public roads and street lighting to the general public which are acquired with the funds made available for that purpose. If the municipality concerned charged a at rate for its services as contemplated in terms of section 8 (6) (a), all the goods and services provided by that municipality would have been deemed to be taxable. In such a case, the deemed supply to DoT would have been zero-rated in terms of section 11 (2) (p). The municipality in this instance will be
allowed to deduct the input tax incurred in providing public roads and street lighting.
On or after 1 April 2005 but before 1 July 2006
Same as above, except that a municipality is not a ‘designated entity’. Consequently, with the amendments to section 8 (5), this section no longer applies to the municipality. If the grant payment is in respect of the municipality’s taxable supplies (for example, a municipality that charges the ‘ at rate’), the payment will be zero-rated in terms of section 8 (5A) and 11 (2) (t). Alternatively, if the payment is in respect of the exempt supplies of the municipality, the payment will be out-of-scope for VAT purposes.
366 Juta’s IndIrect tax 2016