Page 443 - Juta's Indirect Tax

IN 57 VaLue-added tax act: InterPretatIOn nOtes IN 57
Example 1 — Business yet to commence or dormant business
Facts:
Company A is a registered vendor and has decided, in addition to its current activities, to commence with a property construction activity. Company A acquires xed property with the intention to develop residential units and sell the individual units to prospective buyers. However, before the construction of the residential units, Company A experi- ences nancial dif culties and sells the property construction activity together with the property and building plans to Property Company B.
Question:
Does the supply of Company A’s enterprise activity constitute an income-earning activity?
Result:
Company A’s enterprise activity which is being sold to Property Company B was not an income-earning activity be- fore it was sold and neither will it be an income-earning activity on the date ownership of the property is transferred to Property Company B.
4.8.6 Sale of share block shares
A vendor who has applied its share block shares for purposes of making taxable supplies and subsequently supplies such shares to another registered vendor, may zero rate the supply if the parties agree that the enterprise carried on in relation to such share block is disposed of as an income-earning activity by way of the supply of the shares.
4.9 Disposal of the assets which are necessary for carrying on the interprise
The assets which are necessary for carrying on the enterprise must be disposed of by the seller to the purchaser. However, the assets that are not necessary for carrying on the enterprise, need not be disposed of with the enterprise. The seller can, for example, decide to keep certain assets or the purchaser can decide not to purchase certain old stock or book debts.
The term ‘disposed of’ is not de ned in the VAT Act. Ordinarily, the dictionary de nition of each word within the phrase is used as reference to determine the meaning of the phrase, in which case, the word ‘disposed’ is used as a verb and is de ned as:*
1. 2. 3. 4.
verb (used with object) ... ... .
to put in a particular or the proper order or arrangement; adjust by arranging the parts to put in a particular or suitable place: The lamp was disposed on a table nearby.
to make t or ready; prepare: Your words of cheer dispose me for the task
However, the aforementioned de nition does not provide suf cient guidance. Therefore, there is a de nition for the phrase ‘dispose of’ as a verb phrase which can be used and is de ned as:†
1. 2. 3. 4.
to deal with conclusively; settle
to get rid of; discard.
to transfer or give away, as by gift or sale to do away with; destroy.
Therefore, the phrase ‘disposed of’ can be interpreted, within the context of section 11 (1) (e), to include an outright sale as well as a lease or rental of the assets necessary for the carrying on of the enterprise. It is important to note that while the sale of the enterprise as a going concern can be a zero-rated supply, the lease or rental of the assets necessary for the carrying on of the enterprise will be a standard-rated supply. With regard to a lease or rental of the assets necessary for carrying on the enterprise, the purpose of entering into such lease or rental must be to give effect to, and not merely to purport, the supply of a business which is a going concern and an income-earning activity.
Example 2 — Assets necessary for carrying on the enterprise
Facts:
Company A is a registered vendor and conducts a manufacturing activity. Company A leases a xed property from Property Company B in which it conducts its manufacturing activity. Company A enters into an agreement with Company C to sell the manufacturing activity, which includes all the assets necessary for carrying on the enterprise. However, in terms of the agreement, Company A will terminate the lease for the xed property with Property Com- pany B. However, as the xed property is an integral part of the activity conducted by Company A, in terms of the agreement, it requires Company C to enter into a simultaneous lease with Property Company B. Company C enters into a separate lease agreement with Property Company B for the lease of the xed property that was previously leased by Company A.
Question:
Will the lease of the xed property together with the sale of the manufacturing activity be regarded as the disposal of the assets which are necessary for carrying on the manufacturing activity?
* http://dictionary.reference.com † http://dictionary.reference.com
Juta’s IndIrect tax 2016 435