Page 485 - Juta's Indirect Tax

IN 82 VaLue-added tax act: InterPretatIOn nOtes IN 82
placed, as contemplated in section 8(13). In terms of section 16(3)(d), the input tax deduction 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.*
Proviso (iii)(bb) to section 17(2)(c) allows a vendor to deduct input tax on the acquisition of a motor car where the motor car has been acquired for purposes of awarding it as a prize to customers. Employees or of ce holders of the vendor as well as any connected persons (to the employees, of ce holders or to the vendor) are excluded as customers for the purpose of this proviso and as such no input tax deduction will be allowed if the prize is awarded to any of these people. A vendor that regularly supplies motor cars as prizes to customers is entitled to deduct input tax to the extent that it is awarded in consequence of a taxable supply made in the course or furtherance of an enterprise. For instance, in order to participate in a competition hosted by the vendor, customers are required to purchase a speci c item and attach their till slip (evidencing their purchase) to the entry form.
3.9 Concession for foreign donor funded projects
Under section 17(2A) the disallowance of an input tax deduction on the acquisition of a motor car does not apply to foreign donor funded projects. Foreign donor funded projects are therefore speci cally allowed to deduct input tax on the acquisition of a motor car applied in the course or furtherance of the foreign donor funded project.
3.10 Change in use adjustments
Section 18 requires a vendor to make an adjustment to output tax or deduct input tax to the extent that goods or services were acquired with the intention to apply it for a speci c purpose, and it is subsequently applied for another purpose. For example, when an asset is purchased to make taxable supplies and is subsequently used to make exempt supplies or used for personal consumption and vice versa.
A decrease in the use of an asset initially acquired for taxable purposes would result in a deemed supply by the vendor that is required to declare output tax (that is, an increase in the output tax liability), while an increase in taxable use would result in a deemed supply to the vendor that is as a result entitled to an input tax deduction under section 16(3)(f) (that is, an increased input tax deduction).
Adjustments in respect of the expenses relating to the repair, maintenance and insurance of a motor car are discussed in 3.7.
3.10.1 Change in use from a taxable to a non-taxable purposes [section 18(1)]
A vendor that is entitled to deduct input tax on the acquisition of a ‘motor car’ as de ned (typically in the case of motor dealers) and that subsequently applies the motor car wholly for a non-taxable purpose or for purposes for which an input tax deduction would have been denied on acquisition is deemed, under section 18(1), to make a taxable supply in the course of its enterprise. The vendor must account for output tax on the open market value of such supply under section 10(7). The time of supply is, under section 9(6), deemed to take place in the tax period when the goods or services are applied for non-taxable purposes or for purposes for which an input tax deduction would have been denied.
Section 18(1) is not applicable to motor cars acquired for demonstration purposes or temporarily used for a non- taxable purpose before a taxable supply of that motor car being made (see 3.8.2).
Example 3 – Motor car awarded as a prize
Facts:
Every three months A (Pty) Ltd awards one lucky customer a car upon the purchase of an item advertised that month. A (Pty) Ltd purchases the car for R228 000 (including VAT) in March 2014 and awards the car to the winner in June 2014. The open market value of the car on the date of acquisition is R250 000.
Result:
A (Pty) Ltd will deduct input tax of R28 000 (14 / 114 × R228 000) under section 16(3)(d) read with proviso (iii)(bb) in its June 2014 VAT return.
Example 4 – Motor cars acquired for resale and subsequently applied for another purpose
Facts:
On 1 January 2014, a motor dealer purchased a motor car with the intention of selling it in its dealership. The motor car was damaged before it could be sold, and on 1 June 2014, the motor dealer decided to use the motor car as an employee pool car.
Result:
Due to the fact that the vendor is a motor dealer and the motor car is acquired for the purpose of resale, it is entitled to deduct input tax under section 16(3) read with section 17(2)(c)(i) in its January 2014 VAT return.
On 1 June 2014 the motor car is subsequently applied for a purpose for which an input tax deduction would have been denied on acquisition.
As a result, the motor dealer is deemed, under section 18(1)(ii), to supply the motor car in the course or furtherance of its enterprise and is required to effect an output tax adjustment in its June 2014 VAT return.
If the motor dealer purchased the car with the original intention of it being an employee pool car, the motor dealer would have been denied an input tax deduction under section 17(2)(c).
* For more detail on the VAT implications of speci c transactions undertaken in the gambling industry, refer to Interpretation Note No. 41 (Issue 3) dated 31 March 2014 ‘Application of VAT to the Gambling Industry’.
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