VAT Lecture 2

SUPPLIES TAXABLE supplies EXEMPT supplies Zero-rated Standard rate No VAT applicable 14% 0% Listed in Section 12 All other supplies Listed in Section 11

ZERO-RATED supplies VAT charged @ 0% (taxable but at 0%) Vendor can still claim input VAT although VAT is charged @0% SECTION 11 lists all ZERO rated supplies

Zero rated section 11 Export of goods (take note – no detail) Sale of a going concern Fuel levy goods (petrol and diesel) Basic foodstuffs (brown bread, milk, eggs, fresh fruit & veg) – PART B Schedule 2 Kruger Rands Illuminating kerosene use for fuel …. Transport of passengers or goods to/from an export country Services rendered to non-residents who are outside SA at the time the services are rendered Services rendered outside SA Supplies to independent branches situated outside SA Municipal rates levied by municipality

Zero rated – GOING CONCERN Both parties REGISTERED for VAT Agree in writing  business = going concern & will be income earning activity on date of transfer All assets necessary to carry on enterprise is part of sale Contract states VAT @ 0%

EXEMPT supplies NO OUTPUT VAT is levied thus NO input tax may be claimed. Section 12 lists all Exempt supplies

EXEMPT SUPPLIES Section 12 Financial services (interest) – read examples in SILKE Supply by an association not for gain of donated goods Letting of residential accommodation (not selling) Accommodation supplied by employer to employee Transport of fare-paying passengers and personal effects by rail / road (e.g. taxis) (if not zero rated) Educational services Trade union subscriptions Crèche or after-school care centre

Financial services = exempt supply FEE EXEMPT TAXABLE ISSUE OF DEBT SECURITY Additional CHARGE to provide the service ISSUE OF EQUITY SECURITY ISSUE OF LOANS INTEREST???

Residential accommodation = exempt What is residential accommodation?? Dwelling  structure/building…residence Letting/hiring  NOT SALE Lodge & boarding by EMPLOYER to employee Employee entitled due to employment Employer operates MAINLY for employees rather than profit

Commercial accommodation = Taxable What is commercial accommodation? LODGE/BOARDING + domestic goods and services Regularly Domestic goods and services? (Silke page 1056)

Commercial accommodation - TAXABLE Lodge/boarding and ANNUAL supply > R120 000 Value: Output in FULL if accommodation supplied for 28 days or less When > 28 days (unbroken period) 60% output from day 1

Residential v Commercial EXEMPT supply STANDARD supply Main residence (living) Employer to employee Lodge or lodge & boarding Old age home hospice Rent/lease NOT buy <28 days- TOTAL output 28 days/> - 60% output

Example: Commercial and Residential accommodation Jo owns property and is a vendor During the current VAT PERIOD Jo earned the following amounts: Letting of townhouses R42 000 Short term stay (<28 days) in bed and breakfast hotels (incl VAT) R15 000 Board and lodging in boarding houses (>28 days, excl VAT) R30 000 Calculate the output tax i.r.o. the income earned (round of your calculations to the nearest Rand) Source: Silke

Solution Letting of a townhouse  EXEMPT Residential accommodation Bed and breakfast  Commercial  15 000 x 14/114 = 1 842 Board and lodging  LT commercial  30 000 x 14% x 60% = 2 520

Transport of fare paying passengers = EXEMPT Bus, taxi, train Transporting of PEOPLE Must pay FARE ??? – AIR TRAVEL in SA/OUT SA (Silke Page 1058)

Transport services (Section 12(g) Travel by road or railway of fare paying passengers within RSA – Exempt Travel by air outside RSA – zero rated Travel by air within RSA – standard rated (14%) Travel in a game viewing vehicle or hearse – standard rated (14%)

Travel????? Non chargeable transport of hotel guests? Chargeable transport of hotel???? Input VAT on expenditure relating to the shuttle??

DEEMED supplies DEEMED supplies  may not meet the definition of a supply… Ceasing to be vendor Fringe benefits – to be covered in 2nd sem Indemnity payments (Silke page 1061) Other – see module

DEEMED supplies Ceases to be a vendor Output tax levied on all goods & services still owned on day person ceases to be vendor NOT applicable if it is due to his death or sequestration and the trust or executor is carrying on the enterprise.. VALUE of supplies  LESSER of Cost at acquisition/manufacture….. Open market value on date vendor ceases to be vendor TIME of supply: Immediately before vendor ceases to be vendor

Deemed supply: Indemnity payments Payment received from short-term insurance contract (related to taxable supplies) = deemed supply OUTPUT VAT payable WHY? value of the supply = tax fraction x consideration received Time supply – when insurance payment is received Short term insurance – All insurance Long-term insurance – Life insurance Taxable supplies = std and zero rated The insured must also be a vendor, as this deemed supply is not applicable to non-vendors Students do not need to know 3rd party insurance

Deemed supply: Indemnity payments NO deemed supply where: payments not related to taxable supplies or Reinstatement of goods

Example 1: Indemnity payment Manufacturers Ltd recently suffered a robbery at its premises The insurance company reimbursed them in cash as follows: For delivery vehicle stolen R132 000 For passenger vehicle stolen R100 000 For microwave oven in canteen stolen R 2 500 Calculate the output tax in respect of the insurance payment received Source: Silke

Solution OUTPUT VAT Delivery – Input  yes NOT motor 132 000 x 14/114 = 16 211 Passenger – Input  NO MOTOR as defined No output Microwave – Input  DENIED = Entertainment

Example: Indemnity payment – taxable and exempt use Boston bank acquired insurance cover for a computer of which 40% was used for taxable purposes and 60% for exempt supplies The computer was stolen and the bank received an indemnity payment of R14 230 from its insurer Calculate Boston bank’s output tax liability (round off your calculations to the nearest rand)

Solution OUTPUT VAT 14 230 x 14/114 x 40% = R699.01

REFER BACK IN 2nd SEMESTER AS PART OF INDIVIDUALS DEEMED supplies FRINGE BENEFITS REFER BACK IN 2nd SEMESTER AS PART OF INDIVIDUALS Provision of fringe benefit by a registered vendor to employees is DEEMED a supply of goods/services ONLY applicable to FRINGE benefits per SEVENTH SCHEDULE in Income Tax Act