Page 483 - Juta's Indirect Tax

IN 82 VaLue-added tax act: InterPretatIOn nOtes IN 82
(for example, exempt, private or out-of-scope), input tax is limited to the extent that the goods or services are acquired for the purpose of making taxable supplies.*
Generally, a vendor is not entitled to deduct input tax on the acquisition of a motor car under section 17(2)(c) irrespective of the purpose for which the motor car was acquired. The proviso to section 17(2)(c) contains certain exceptions that allow a vendor, in limited circumstances, to deduct input tax on the acquisition of a motor car. This is discussed in 3.8.
The subsequent sale of a motor car on which input tax was speci cally denied when it was acquired, is not regarded as a supply made in the course or furtherance of the vendor’s enterprise, under section 8(14)(a). The vendor is therefore not required to charge or account for output tax under section 7(1)(a) on that sale.
3.4 Accessories
3.4.1 Accessories regarded as part of the standard structure of a motor car at the time of purchase
An input tax deduction is denied, under section 17(2)(c), to the extent that accessories form part of the standard structure of a motor car (accessories tted to the motor car as it comes off the manufacturer’s production line) regardless of whether they are separately speci ed on the tax invoice or not. Accessories that may be regarded as forming part of the standard structure of a motor car include, amongst others, the alarm, spare wheel, bull bar, gear lock, tow bar, tinted windows, air conditioner, rubberising and spot lights. In these instances, the accessories are regarded as forming part of the supply of the motor car and the input tax is denied under section 17(2)(c).
3.4.2 Accessories not forming part of the standard structure of a motor car
The provisions of section 17(2)(c) prohibiting the deduction of input tax on a motor car are not applicable if accessories are purchased and invoiced separately from the acquisition of the motor car and do not form part of the standard structure of the motor car when it is supplied. The accessories are regarded as not forming part of the vehicle structure if the accessories are removable and did not form part of the initial standard structure of the vehicle. Examples of such accessories are a re extinguisher, driver’s repair kit, roof racks and a rst aid kit.
The supply of these accessories is seen as separate from the supply of the motor car and the VAT incurred may be deducted as input tax.
3.5 Modi cations made to a motor vehicles
A modi cation to a vehicle means an alteration to the engine or structure of the vehicle that does not result in the conversion of the vehicle from a passenger to a non-passenger vehicle or vice versa. An example would be to alter the physical appearance of the vehicle by adding a canopy to a double cab. The VAT incurred by a vendor on modi cation costs, subsequent to the acquisition of a motor car, may be deducted as input tax. VAT incurred by a vendor, on modi cations made by the supplier before the supply of the motor car, cannot be deducted as input tax as the supply remains that of a motor car.
3.6 Converting a vehicle
3.6.1 Converted before the supply of the vehicle
The supply of a vehicle that was converted into a motor car before it is delivered to the purchaser is considered to be the supply of a motor car and the vendor will not be entitled to an input tax deduction, for example, if seats were added to the loading area of a bakkie in order to convert it into a motor car.
Conversely, a vendor is entitled to an input tax deduction when acquiring a vehicle if a ‘motor car’, as de ned, has been converted wholly or mainly for a purpose other than the carriage of passengers before the supply of such vehicle. An example of how a motor car can be converted into a vehicle mainly for the transport of goods is the permanent removal of seats from a bus (16-seater vehicle) and tting a oor panel to create a loading area.
3.6.2 Converted after the supply of the vehicle
At the time the vehicle is supplied, the vendor should apply the objective test referred to in 3.2 which would determine whether the vehicle is a ‘motor car’ as de ned. If the vehicle is determined to be a motor car, the vendor would not be entitled to deduct input tax, other than in the circumstances discussed in 3.10.3. In the event that the vendor subsequently converts such motor car to a non-passenger vehicle (that is, not a motor car) the vendor will not be entitled to deduct input tax on the original or initial purchase price of the converted vehicle.
The vendor would, however, be entitled to deduct input tax on the conversion costs, provided such motor car is used, consumed or supplied in the course of making taxable supplies.
3.7 VAT paid on expenses relating to the running and upkeep of a motor car
Repair, maintenance and insurance expenses are incurred as a consequence of acquiring a motor car. VAT incurred on running expenses relating to the repair, maintenance and insurance of a motor car may be deducted as input tax to the extent that the motor car is used, consumed or supplied in the course of making taxable supplies.
3.7.1 Adjustment on running expenses in respect of a motor car initially acquired for a taxable purpose and subsequently applied for an exempt or private purpose
In the event that a motor car is initially acquired for a taxable purpose, and is subsequently applied for a purpose other than making taxable supplies, the repair, maintenance and insurance expenses will also be acquired for a purpose other than a taxable purpose.
* Any reference, in this Note, to a vendor being entitled to an input tax deduction would be subject to the vendor complying with the provisions of section 16(3) read with the de nition of ‘input tax’ and sections 16(2), 17 and 20.
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