Have you told Someone you Love them!!

QUESTIONS

Question 1 CAT (Pty) Ltd (hereafter “CAT”) is a Category B VAT Vendor registered under the invoice basis. They are supplying accommodation and transport services to the general public. CAT was started by two brothers (Chris and Arnold Turner) after they have travelled the world and realized that to find accommodation and transport in an unknown country sometimes is a hassle. They decided to launch their business, as equal shareholders, initially with only transport services (charging a fare to transport travelers to required destinations) – it proved to be successful and they then extended their business at the start of the year of assessment on 1 March 2015 to supply accommodation as well – CAT exceeded the threshold stated by legislation for this type of supply in their 3rd month of business. They do world-wide marketing and a lot of overseas visitors to SA make use of their services and products. CAT appointed a new VAT clerk in January 2016 and it proved to be a bit of mission as the clerk is not 100% sure of the VAT rules nor treatment of certain transactions. All amounts include VAT where applicable.

Accommodation in Cape Town Arnold Turner booked out the 4 rooms in their small Cape Town boutique hotel for one night at a rate of R650 for his 60th birthday celebration during January. The rack rate charged to tourists is normally R1 650. A frequent business traveler staying in this boutique hotel contacted Arnold in February to ask for a special rate as he wanted to stay in the hotel for 30 nights starting 15 February. Arnold agreed to a reduced rate of R1 000 per night. At the end of February the traveler paid the full amount of R30 000. CAT provide all guests in the boutique hotel with a small souvenir photo frame valued at R100 at the end of a stay longer than 3 nights. In this VAT cycle they purchased a 1 000 frames from a supplier for R50 per frame. They ordered the bulk order due to it being discounted by 50%. They gave 10 frames to guests during this VAT cycle. CAT paid their SA Tourism gild membership fee in February of R5 000. This membership fee entitles CAT to advertise their 4 star rating of the boutique hotel. Explain to the clerk what the VAT treatment will be, for the transactions provided.

Arnold = connected person >10% shareholding <MV R650 vs R1 650 Arnold can not claim input – not a vendor  Output charged on MV 4 x 1 650 x 14/114 811 Long term guest > 28 days (R1 000 x 30) x 14/114 x 60% 2 211 Free frames – no consideration – value deemed nil   Can claim input - directly related to taxable supplies 1 000 x R50 X 14/114 (6 140) Membership to SA Tourism - directly related to taxable supplies 5 000 x 14/114 (614)

CAT decided to enter the property market CAT decided to enter the property market. The brothers purchased a subdivided piece of land from their non-vendor uncle in Parktown for R2million. The uncle decided to subdivide his acre property as he could not manage the huge property anymore. An estate agent friend told Arnold that that piece of property is valued at R4million and that they got a great deal. CAT wants to erect 10 two story flats on this property and rent it out to young professionals

60 500 Land = second hand goods Connected person – uncle NEW VENTURE   Land = second hand goods Connected person – uncle < cost (R2m) or MV (R4m) But NO NOTIONAL input – as Exempt – RESIDENTIAL accommodation Transfer duty will be applicable ((2m - 1 750 000) x 8% + R40 500) 60 500

Question 2 ALPHA SHOES As a result of a strike and subsequent meeting with a trade union, Alpha Shoes now operates a canteen. Employees requested a free lunch at work rather than a pay increase. It cost Alpha Shoes the following: 1. R142 500 (incl VAT) to convert factory building into canteen 2. R68 400 (incl VAT) to equip canteen 3. R57 000 (incl VAT) to furnish canteen 4. R12 000 (excl VAT) for lunch ingredients 5. R500 (excl VAT) for increased electricity charges   WHAT ARE THE VAT CONSEQUENCES to ALPHA SHOES of the above transactions

Canteen = provision of food & beverage  Entertainment NO DEEMED output (no input deduction!)

Question 3 ROLLS ROGERS Rolls Roger (RR) manufactures and retails luxury motor cars. RR recently held a four-day selling skills training course for its sales consultants at a remote game lodge in the Kruger National Park. The financial accountant of RR is unsure of the VAT treatment of the following costs incurred for the 4 day training course: 1: Transport of employees to and from training venue - RR hired 5 twelve seater mini busses from a rental operator at a cost of R11 286 (incl VAT). INCLUDED in the total charge of R11 286 is R900 (excl VAT) for insurance on the mini busses. 2: RR hired an outside consultant at a fee of R20 520 (incl VAT) to conduct the 4 day training course to its employees. 3: The total cost of accommodation and meals for the duration of the course was R72 800 (excl VAT). This amount represents a daily charge of R350 (excl VAT) a person. IN total 52 persons (50 employees and 2 outside consultants) were accommodated at the game lodge for the 4 day period.

4: To encourage and motivate teamwork amongst employees, each participant (including 2 consultants) was given a tracksuit bearing the RR logo, to wear at their discretion during the training course. The tracksuits were specifically manufactured for RR at a cost of R8 892 (incl VAT) The financial director would like to know whether an input tax credit may be claimed on the expenses as detailed above YOU ARE REQUIRED to draft a brief reply memorandum

Question 4 During cleaning services, Sam reversed his bakkie into the customers’ automatic gate. Considerable damage was done to these gates. The customer repaired the gate at a cost of R1 368 (incl VAT). CAR (Pty) Ltd claimed against its insurer for the damage caused to the gate. The insurer settled the R1 368 directly with the customer thereby indemnifying CAR (Pty) Ltd.   Supply the journals of the above transactions.

Insurance excess 168 To Output vat 168 Being output tax payable on ‘deemed’ supply arising from an indemnity payment made to a customer.

Question 5 Thabo is making taxable supplies of 85% Question 5 Thabo is making taxable supplies of 85%. He has a residential flat that he rents out and also a bed and breakfast where customers stay on a regular basis. Thabo met the R120 000 requirement in a prior year. All amounts include VAT where applicable He incurred the following expenses during the VAT cycle Cleaning materials used in his businesses R10k Water/electricity for the bed and breakfast R20k Short term insurance for flat R2,5k Rates and taxes for his businesses R9k

Cleaning materials 10k x 14/114x 85% Water & Elect 20k x 14/114 Insurance for flat – EXEMPT – residential accom Rates and taxes – ZERO rated

R4 485 and is made up as follows: Question 6 A buyer whose usual place of residence is in Durban, flew to Richards Bay to purchase trading stock from manufacturers based in Zululand. The total cost of this trip was R4 485 and is made up as follows: Airfare (R590 + VAT R83 + taxes R327) 1 000 Hotel accommodation (incl VAT) 2 223 Car hire Rental (incl VAT) 319 Fuel 45 Insurance premiums (excl VAT) 190 Service fee (incl VAT) 57   The total input claimed on the above transactions was R429 Journal passed Dt expense 4 056 Dt input 429 Ct Bank 4485 Prepare correcting journal for the above.

Buyer’s out of town expenses 39 To VAT output 39 Being correction to the amount of input tax claimed on the buyer’s out of town trip. Deductible input tax on the expenditure of R4 485 is as follows: Airfare 83 Airport taxes - Accommodation (away from his ‘usual place of residence’) 273 Rental of car (a ‘motor car’ as defined) - Fuel (zero-rated supply) - Insurance 27 Services fee 7 Deductible input tax 390 Input tax claimed 429 Adjustment for amount incorrectly claimed 39

Discuss I rent out 2 rooms at the back of my yard to UJ students each year for 12 months. I voluntarily registered as a VAT vendor this year. I charge the following per student: Rental per month R1 800 Washing per week R30 Sunday lunch R25 I supply electricity (I have a prepaid electricity meter for the rooms) and then I recover the total monthly cost from the students. I do not issue invoices to the students for any of these supplies but I do pay over Output VAT at a rate of 60% of the rental income, 100% on the meal cost and I claim input on the electricity, and all costs involved in the washing (for example – washing soap, softener, and consumables). I also claim input on the Sunday lunch ingredients. Is my VAT treatment correct?

Enjoy Valentines Day