Page 400 - Juta's Indirect Tax

IN 41 (3) VaLue-added tax act: InterPretatIOn nOtes IN 41 (3)
Example 5 – VAT implications of a prize due to promotional event by a casino
Facts:
Lady Luck Casino makes only taxable supplies and is a registered vendor for VAT purposes. Its activities include the supply of betting transactions, accommodation, meals and beverages for a consideration. Betright, a client of Lady Luck Casino won the lucky draw hosted by the casino and was awarded free accommodation for a weekend at a hotel of Betright’s choice. Betright did not pay any entrance fee to participate in this lucky draw and was entered into the lucky draw as a consequence of him previously spending a night at the Lady Luck Casino’s hotel. Betright elected to spend this free weekend at the Seventh Heaven Hotel, a hotel that is not owned by Lady Luck Casino. In this regard, Lady Luck Casino incurred the cost of such accommodation and received a tax invoice from the Seventh Heaven Hotel.
Result:
Lady Luck Casino is entitled to deduct input tax on the tax invoice received from the Seventh Heaven Hotel as the free accommodation provided is a bona de promotion as contemplated in section 17(2)(a).
(d) Outsourced entertainment
The casino will not be allowed an input tax deduction on the accommodation, food or beverages provided to punters free of charge, if the casino rents space on its premises to third parties to operate the hotel, bars, restaurants or fast food outlets, and the casino does not operate any hotel, food and beverage outlets on the premises as an enterprise activity for its own account, as it does not normally supply accommodation, food or beverages for a consideration to its clients. In these circumstances, the aforementioned entities would all be registered separately from the casino for VAT purposes. It therefore follows that the casino, which does not supply entertainment that is similar in all respects for a consideration to its clients or customers in awarding a prize, being entertainment, and where there is no direct link to a supply contemplated in section 8(13), will not be entitled to deduct input tax on acquisition of such prizes.
Example 6 – VAT implication of prize (meal) due to a promotional event by a casino
Facts:
Lady Luck Casino makes only taxable supplies and is a registered vendor for VAT purposes. Its only activity is the supply of betting transactions. Betright, a client of Lady Luck Casino was the 1 000th patron to enter the casino and was awarded a free meal for two at the Meaty Restaurant (that is, a restaurant not owned by Lady Luck Casino). In this regard, Lady Luck Casino incurred the cost of such meal and received a tax invoice from the Meaty Restaurant.
Result:
Lady Luck Casino is not entitled to deduct input tax on the meal supplied to Betright by Meaty Restaurant as there is no link to the supply contemplated in section 8(13).
Example 7 – VAT implications of a prize (accommodation) due to a promotional event by a casino
Facts:
Lady Luck Casino makes only taxable supplies and is a registered vendor for VAT purposes. Its only activity is the supply of betting transactions. Betright, a client of Lady Luck Casino was awarded free accommodation for a weekend at a hotel of Betright’s choice. This was awarded to Betright as reward for loyalty to the casino. Betright elected to spend this free weekend at the Leisure Hotel, a hotel that is not owned by Lady Luck Casino. In this regard, Lady Luck Casino incurred the cost of such accommodation and received a tax invoice from the Leisure Hotel.
Result:
Lady Luck Casino is not entitled to deduct input tax on the tax invoice received from the Leisure Hotel as there is no link to the supply contemplated in section 8(13).
3.3.4 Motor cars
Under section 17(2)(c), a vendor is entitled to deduct input tax on the acquisition of a motor car that is acquired for the purpose of awarding the motor car as a prize. This prize must be awarded as a result of a bet being placed and such bet being a deemed supply under section 8(13). The deduction in this regard will be limited to the VAT incurred on the initial acquisition of the motor car and can only be deducted in the tax period in which the motor car is awarded as a prize. This prohibits vendors acquiring the motor car at a lower price and then deducting input tax on such motor car at a higher value (that is, the input tax deduction is limited to the VAT that was actually incurred).
Example 8 – VAT implications of a motor car acquired to be awarded as a prize
Facts:
Joe Soap’s Casino, on 1 February 2013, acquires a motor car in an arm’s length transaction at 10% below the market value (that is, R205 200 including VAT) for the purposes of awarding it as a prize to a successful punter playing on its ‘Car Mania’ slot machines. The motor car is awarded as a prize on 15 June 2013 on the outcome of a betting transaction when the market value is R228 000.
Result:
Joe Soap’s Casino is entitled to a deduction under section 16(3)(d) on the amount paid for the motor car (that is, R205 200 × 14 / 114) in the tax period covering 15 June 2013.
392 Juta’s IndIrect tax 2016