Page 486 - Juta's Indirect Tax

IN 82 VaLue-added tax act: InterPretatIOn nOtes IN 82
Example 5 – Delivery vehicles converted for the carriage of passengers
Facts:
On 2 January 2014 a construction company acquired a single cab vehicle for the purpose of delivering building supplies to the various construction sites. On 15 October 2014 the vendor inserts seats in the loading area in order to transport workers. The vehicle was therefore converted mainly for the carriage of passengers and would constitute a ‘motor car’ as de ned.
Result:
The vendor is entitled to deduct input tax on acquisition of the single cab in the January 2014 VAT return, under section 16(3), as it is not a ‘motor car’ and it is acquired for the purpose of consumption, use or supply in the course of making taxable supplies.
As a result of the conversion, the vendor must account for output tax on the open market value of the motor car under section 16(4) read with section 18(1)(ii) in its October 2014 VAT return.
Should the vendor have initially acquired the motor car for the purpose of carrying passengers, an input tax deduction would have been denied under section 17(2)(c), irrespective of the fact that the vehicle is used in the course or furtherance of making taxable supplies.
3.10.2 Change in use from a non-taxable to taxable purpose [section 18(4)]
A vendor that acquires a vehicle, for which an input tax deduction is denied upon acquisition, and subsequently utilises such vehicle for purposes for which an input tax deduction would have been allowed on acquisition, may deduct input tax under section 18(4).
Example 6 – Motor car acquired for another purpose and subsequently sold as trading stock
Facts:
K, who operates a motor dealership and a taxi business, purchased a motor car on 1 February 2014 from a fellow motor dealer for the purpose of using it in the taxi business. K subsequently realised there is a high demand for the vehicle and on 2 July 2014 entered it as stock in the dealership before selling it to a customer.
Result:
An input tax deduction is denied on acquisition of the motor car as it is acquired for the exempt purpose of transporting fare-paying passengers and not for the purpose of resale.
Due to the fact that the motor car was subsequently applied for the purpose of making a taxable supply, K is entitled to deduct input tax, on the lesser of the adjusted cost or open market value, under section 18(4) read with section 16(3) (f) in the July 2014 VAT return. As a result the sale of the motor car to the customer would be subject to output tax under section 7(1)(a) in the tax period it is supplied.
Example 7 – All-inclusive example for section 18(1) and (4)
Facts:
X owns a motor dealership and on 1 February 2014 purchased the following vehicles for the business:
• •
Sports car at R228 000 (VAT inclusive). The sports car was acquired for the purpose of awarding it as a prize. Customers who have purchased a vehicle from the dealership within the past 12-months were eligible to enter the competition for a chance to win the sports car. In November 2014 a customer won the car.
5 single cab bakkies at R57 000 each (VAT inclusive). In June 2014, the dealership sold 4 bakkies at the open market value of R68 400 each, including VAT. The remaining bakkie was taken out of stock and used as X’s personal vehicle.
Result:
February VAT return
Input tax of R35 000 for the VAT incurred on the acquisition of the 5 bakkies purchased at R57 000 each is deducted as follows:
14 / 114 × R57 000 × 5 = R35 000
June VAT return
Output tax on the sale of the 4 bakkies is calculated as follows: 14 / 114 × R68 400 × 4 = R33 600
The motor dealership is deemed, under section 18(1), to supply the bakkie to X and must therefore account for
output tax of:
14 / 114 × R68 400 = R8 400
November VAT return
The motor dealership is, under proviso (iii)(bb) to section 17(2)(c), entitled to deduct input tax when it awards the sports car as a prize, calculated as follows:
14/114 × R228 000 = R28 000
3.10.3 Motor cars converted to game viewing vehicles and hearses [section 18(9)]
A vendor is entitled to deduct input tax, under section 16(3)(a)(i) or section 16(3)(b) read with section 18(9), on the acquisition of a motor car that is permanently converted into a game viewing vehicle or hearse based on the lesser of the adjusted cost or open market value of the motor car on the day before such conversion where the vehicle is used, consumed or supplied in the course of making taxable supplies.
478 Juta’s IndIrect tax 2016