TX-ZAF_Slides_VAT_Lecture Notes_Day6

TX - ZAF 

Value Added Tax 

1

Outcomes 

Upon the successful completion of this Study Unit 

you should be able to: 

• Calculate the VAT payable or refundable for a 

relevant tax period; 

• List the registration requirements and apply these 

requirements to a given set of facts; 

• Select the most important definitions in the VAT 

Act and motivate the choice/s; 

• Explain what accounting bases may be used and 

explain which bases to apply for; 

• Explain VAT consequences to a Tax payer

Introduction 

• Levied ito Value-Added Tax Act 89 of 1991 

• At what rate is VAT levied? 

• VAT is an Indirect tax 

What does 

this mean? 

User acquiring 

goods/services 

Supplier/Vendor 

SARS 

• Prices must include VAT, unless specifically broken 

down into value and VAT

Calculation of VAT 

Output tax 

• D 

Input tax 

Tax payable/refundable

VAT admin 

Accounting basis 

2 Accounting bases that may be applied by a 

vendor to account for VAT 

• Invoice basis 

• Payments basis 

Determines time 

of supply

Invoice basis 

Account for VAT: 

Earlier of: 

• invoice is issued 

OR 

• any payment is received 

Exception 

When payment is received 

Supply of fixed property

Example 

A vendor registered on the invoice basis supplied the 

following goods: 

(a) On 2 February goods are delivered at one of the 

clients’ premises and the invoice for the goods was 

issued on the same date. The payment for the goods was 

received on 31 March. 

(b) On 29 April a client paid R100 000 for goods 

delivered on the same date. The invoice was issued on 

14 May. 

You are required to determine the time of the above 

supplies for VAT purposes.

Solution 

(a) Earlier of: 

• invoice is issued (2 February) 

• any payment is received (31 March) 

OR 

= 2 February 

(b) Earlier of: 

• invoice is issued (14 May) 

• any payment is received (29 April) 

OR 

= 29 April

Payment basis 

Account for VAT: 

• Payment date 

MUST use invoice basis for goods/services supplied of ≥ 

R100 000 (incl. VAT) 

N/A to fixed 

property 

• Who may account for VAT on the payments basis? 

Public authorities, 

municipalities etc.

Example 

A vendor registered on the payments basis supplied the following 

goods: 

(a) On 2 February goods were delivered at one of the clients’ 

premises and the invoice for R15 000 for the goods was issued on the 

same date. The payment for the goods was received on 31 March. 

(b) On 29 April a client paid R50 000 for goods delivered on the same 

date. The invoice for the goods was issued on 14 May. 

(c) On 19 July trading stock was delivered at a client’s premises and 

the invoice for R180 000 was issued on the same date. Payment for 

the goods was only received on 31 August. 

You are required to determine the time of the above supplies for 

VAT purposes.

Solution 

(a) Value of supply < R100 000 = payment 

received – 31 March. 

(b) Value of supply < R100 000 = payment 

received – 29 April. 

(c) Value of supply > R100 000 

the time of supply is determined by applying 

the rules for the invoice basis: the earlier of 

payment or the date the invoice is issued - 19 

July.

Tax periods (s 27) 

Tax period 

Category A: 

Category B: 

Category C: 

Category D: 

2 month periods ending uneven months (Jan, March, May etc.) 

Taxable supplies ≤ R30mill / farmers with taxable supplies > R1,5mill in a 

12 month period 

2 month periods ending even months (Feb, April, June etc.) 

Taxable supplies ≤ R30mill / farmers with taxable supplies > R1,5mill in a 

12 month period 

Monthly periods 

Taxable supplies > R30 million in a 12 month period 

Six month periods, ending Feb/Aug 

Farmers with taxable supplies of < R1,5 million in 12 month period

Tax periods (s 27) (cont.) 

Tax period 

Category E: 

Category F: 

Annual periods, ending on last day of y.o.a 

Companies and trust funds whose activities consist solely of 

– the letting of fixed property or movable goods to, or 

– the administration or management of companies that are connected 

Four month periods, ending Jun/Oct/Feb 

Value of supplies

Definitions

Definition – when will a transaction 

attract VAT? 

There should be: 

1 

• a supply 

2 

• of goods or services 

3 

• by a vendor 

4 

• in the course or furtherance of an enterprise

Supply 

1 

To provide or to make available (dictionary) 

Defined in s1 

• includes a sale, rental agreement, an instalment 

credit agreement…. 

• 2 persons involved (supplier and recipient) 

• includes supplies for consideration other than 

money

Goods or services 

2 

"Goods" are defined as: 

• corporeal movable things 

Things that can 

be touched 

• fixed property 

• any real right in the above (e.g. usufruct) 

• electricity 

Excl. Money, revenue stamps, certain rights

Goods or services 

2 

"Services" are defined as: 

Anything done 

or to be done 

• granting, cession or surrender of any right or the 

making available of any facility or advantage 

• if not a supply of goods, then a service (incl. 

trademarks, goodwill, patents and know-how)

3 

By a vendor 

Person registered/required to be registered under the VAT act 

Includes: 

• Company, CC 

• Body of persons 

(partnership) 

• Deceased/insolvent 

estate etc. 

Group of 

companies? 

Who is required to 

register ito the VAT 

act? 

To register: fully complete a VAT 101 form, which is obtainable from 

SARS’s website (http://www.sars.gov.za)

3 

By a vendor(cont.) 

Registration as a vendor: Compulsory registration: 

• At end of month if taxable supplies > R1m for 12 months 

• At beginning of month, if it is anticipated that taxable supplies 

for the next 12 months will be > R1m 

• Foreign suppliers: at end of month if taxable supplies > R50 000 

for 12 months 

Branches/ 

divisions 

Excl. VAT 

any consecutive period of 

12 months 

Person carries on two separate businesses, he must register when the 

joint taxable supplies of the two businesses > R1m 

S 50 A may deem separate persons as ONE – anti avoidance.

Example 

Mrs Z carries on three different enterprises that only make 

taxable supplies. All three enterprises are carried on in her 

own name. 

• Enterprise 1: Turnover of R360 000 for 12 months 

(excluding VAT) 





Determine whether Mrs Z is obliged to register for VAT 

purposes if the above information applies to the 12 months 

ending 31 December 2014.

Solution 

• Total turnover = R 1 020 000 

• This > R1 000 000 

• Mrs Z has to register as a VAT vendor

3 

By a vendor (cont.) 

Registration as a vendor: Voluntary registration: 

• Taxable supplies > R50 000 for 12 month period 

• Commercial accommodation > R60 000 

• Taxable supplies expected to be > R50 000 in the next 12 

months (payments basis until > R50 000) 

• Person continuously and regularly carries on activity and 

it is reasonably expected that value of taxable supplies > 

R50 000 in 12 month period

4 

In the course or furtherance of an 

enterprise 

Definition of an enterprise 

Not 

once-off 

• any enterprise/activity 

• carried on continuously or regularly (ongoing activity) 

• in SA or partly in SA 

• by any person 

• in the course /furtherance of which 

• goods or services are supplied for a consideration, 

• Deposit – only consideration if applied/forfeited 

• Donation to any association not for gain is specifically excl. 

from the def of ‘consideration’ 

• whether for profit or not. 

In money/ 

otherwise

4 

In the course or furtherance of an 

enterprise 

Specifically excluded from the definition of an enterprise 

• Supply of services by an employee to his employer 

• Hobbies 

• Exempt supplies 

• Commercial accommodation if value of supply 

≤ R60 000 for a period of 12 months

Refusal to register 

SARS can refuse to register a person if any of the 

following apply: 

– Person has no fix place of business 

– Person does not keep proper accounting records 

for is enterprise 

– The person does not a bank account for his 

enterprise 

– The person’s VAT registration was previously 

cancelled due to him not performing his duties 

under the VAT Act 

26

Output VAT 

PAYABLE on the supply BY the vendor


1 

Types of supplies 

2 

Taxable supply 

Exempt supply 

Standardrated 

supply 

Zero- rated 

supply 

No VAT 

15% 

IF 

Input denied 

0% if input tax has been 

denied 

then no output tax is 

levied on the supply

Calculation of output tax - example 

Vendor Ltd’s sales (all standard-rated taxable 

supplies) for a specific tax period amounted to 

R45 600 (including VAT). 

You are required to calculate output tax in 

respect of the supplies. 

R45 600 x 15/115 = R5 947.83

The levying of output VAT 

Output tax is 

levied on 

• the supply of goods, or services by a vendor in 

the course or furtherance of an enterprise 

• imported goods , or 

• imported services

Zero-rated supplies (s11)

Zero-rated supply: Exported goods 

Definition of 'exported': 

Goods delivered 

in export country 

Ownership 

changes in SA 

• Direct/ indirect exports, or 

0% N/A – 2 nd hand goods if 

notional input was claimed 

Supply – subject to VAT @ 15% 

Recipient entitled to refund 

• goods delivered to owner of a foreign-going 

ship / aircraft, or 

If used on 

ship/aircraft 

• goods supplied under a rental agreement 

If used in export country/ 

customs controlled area

Example 

Mr Strempel is a non-resident on vacation in South Africa. 

Whilst touring the Kruger National Park, he decided to 

purchase a wooden giraffe figure. The curio store charged 

him R3 363 for the novelty item, including VAT at the 

standard rate. Mr Strempel and his giraffe figure continued to 

tour the country for another two weeks before his leave 

entitlement ran out and he needed to return to his home 

country Germany. Mr Strempel took the giraffe figure along 

when he left South Africa. 

Explain the VAT consequences for Mr Strempel, the curio 

store, and the position of SARS.

Solution 

• Mr Strempel would have initially paid VAT of 

R439 (R3 363 × 15/115) when purchasing the 

giraffe figure from the curio store. The curio 

store, being a VAT vendor, needs to charge the 

output tax of R439 and pay it over to SARS. Upon 

leaving the country with the wooden giraffe, Mr 

Strempel can have the VAT of R439 refunded to 

him. SARS needs to refund this amount on Mr 

Strempel’s departure with the item purchased in 

South Africa, as it is regarded as being an indirect 

export in terms of the Export Incentive Scheme.

Zero-rated supply: Exported services 

Transportation (s 11(2)(a)) 

If transported from: (at least one leg outside SA) 

Outside SA to Outside SA 

In SA to Outside SA 

Outside SA to in SA 

Insurance on above - also zero-rated (s 11(2)(d)).

Zero-rated supply: Exported services 

Services rendered outside South Africa (s 11(2)(k)) 

If 

• physically rendered outside SA/ 

• Customs controlled area 

Services to non-residents (s 11(2)(l )) 

If non-resident is not in SA @ time services are rendered 

Zero rating N/A if the service is directly in connection with 

• land, or improvements thereto, situated in SA, or 

• movable property situated inside SA at the time the services are 

rendered 

– Still zero rated if exported subsequent to supply of service

Example 

Vendor A is instructed to replace the screen of a 

laptop computer belonging to a visiting tourist. 

The supply by the vendor may not be zero-rated 

because the laptop is within the borders of 

South Africa. If, however, the laptop is again 

exported directly after the supply, the zerorating 

may be applied.

Zero-rated supply: other 

• Supply of goods and services for use for agricultural or other 

farming purposes (s 11(1)(g)) 

– Example: seed, feed, fertiliser, etc. 

• Supply of gold coins issued by the Reserve Bank (s 11(1)(k)) 

– Example: Kruger Rands 

• Certain basic foodstuffs (s 11(1)(j)) 

– Example: brown bread, maize meal, samp, mealie rice, rice, 

pilchards, milk and milk powder, fresh fruit and vegetables (including 

mealies, but excluding popcorn), vegetable oil (excluding olive oil), 

eggs and lentils 

• The supply of fuel levy goods (ss 11(1)(h)) 

– Example: petrol and diesel 

• Charging of municipal rates by municipality (ss 11(1)(w)) 

– Property rates and taxes @0% 

– Water, electricity, refuse removal @ 15% 

– If charged @ flat rate – not zero rated

Example 

Mark Model (a VAT vendor) carries on the business of a 

dairy, and for the VAT period under review he received 

R300 000 (VAT inclusive) for the sale of milk. During the 

same period he incurred the following expenses (VAT 

inclusive): 

R 

Purchase of cows from vendors 114 000 

Fuel 8 000 

Purchase of packing materials 57 000 

Calculate the VAT payable or refundable for the 

applicable VAT period.

Output tax 

Sale of milk (zero-rated) 

Input tax 

Solution 

Purchase of cows (R115 000 × 15/115) 15 000 

Fuel (zero-rated) 

Purchase of packing materials (R57 000 × 15/115) 7 435 

Total input tax 22 435 

An amount of R22 435 is to be refunded by SARS (Rnil – R22 435) (22 

435) 

Note 

It should be clear from the example that although Mark Model made zero-rated 

supplies, these supplies are also regarded as taxable supplies and that he will still 

be able to claim the input tax incurred in making these supplies. 

nil 

nil

Zero-rated supply: The sale of a going 

concern (s 11(1)(e)) 

Requirements 

• Parties agreed in writing that enterprise, or part 

thereof, is disposed of as a going concern 

• Parties have at the time of conclusion of the contract 

agreed in writing that the enterprise will be an incomeearning 

activity on the date of its transfer 

• All the assets necessary for carrying on the enterprise 

are disposed of by the supplier to the recipient 

• The parties have at the time of the contract agreed in 

writing that the consideration for the supply is inclusive 

of VAT at the rate of 0%. 

• Both the parties (supplier and recipient) must be 

registered vendors for VAT purposes

Exempt supplies

Output tax: Exempt supplies (s 12) 

• No output tax on exempt supplies 

AND 

• No input tax relating to the expenditure on 

these supplies may be claimed


l 

Financial services (ss 2 and 12(a)) 

Examples: 

• issue of a loan, 

• sale of shares 

• interest paid 

NOT financial services: 

• Fee based financial services 

e.g. Bank charges 

• Supply of a cheque book

Example 

The following items appeared on Ragdoll Boutique’s bank 

statements for September: 

R 

Internet banking fee 73,92 

Service fee (bank charges) 162,35 

Transaction costs 83,90 

Administration costs 14,00 

Interest charged on overdraft 116,40 

Interest received on positive bank balance 83,20 

Cheque book – cost 18,20 

Indicate which of the above amounts include VAT and, if 

so, how much VAT is included.

Solution 

Internet banking fee (R73,92 × 15/115) 

Service fee (R162,35 × 15/115) 

Transaction costs (R83,90 × 15/115) 

Administration costs (R14,00 × 15/115) 

Interest charged on overdraft 

Interest received on positive bank balance 

Cost for cheque book (R18,20 × 15/115) 

nil 

nil


l 

Donated goods and services (s 12(b)) 

• Donations by an association not for gain OR 

• Goods being supplied were made/manufactured by 

the association, provided that at least 80% of the value 

of the materials used consists of donated goods.

Example 

The Needy Association, an association not for gain, 

received second-hand clothes and glasses as 

donations from members of the public. The Needy 

Association sells the clothes to the public for R10 a 

piece and engraved the Association’s name on the 

glasses prior to selling them to the public for R5 a 

glass. 

Determine the output VAT consequences of the 

above.

Solution 

The supply of the clothes as well as the glasses 

will be exempt from VAT, since at least 80% of 

the value of these goods consisted of donated 

goods.


l 

Accommodation (s 12(c)) 

Residential accommodation = EXEMPT 

Example: supply of a house / flat to another person who 

will use the house or flat mainly for residential purposes 

Commercial accommodation = VAT @ 15% 

Examples: 

• Board and lodging, together with domestic goods and 

services, in any house, flat, hotel, guesthouse, holiday 

accommodation AND annual receipts > R120 000 in 

12 months/ expected to > R120 000 in 12 months 

• Lodging in home for the aged


l 

Value of supply 

Commercial accommodation 

Accommodation & domestic 

goods/services supplied ≤ 28 days = 

FULL VALUE 

Accommodation & domestic 

goods/services supplied @ all-inclusive 

rate for unbroken period of > 28 days = 

60% OF ALL-INCLUSIVE CHARGE 

Where separate prices are charged for accommodation and other 

services VAT levied @ 100% for other services and 60% for 

accommodation 

Domestic goods/services: example - cleaning and 

maintenance, meals, laundry, furniture, television set etc.

Example 

Hein is the owner of Rest-a-While, a bed and breakfast 

establishment situated in the Natal Midlands. 

His total annual receipts from the bed and breakfast 

business amount to R130 000. Most of the guests do not 

stay longer than three nights at a time. It does 

sometimes happen that a guest stays a month at a time. 

Hein charges R220 per night (excluding VAT) for bed and 

breakfast. 

Explain to Hein the VAT consequences of running his 

bed and breakfast business.

Solution 

The B & B business constitutes the provision of commercial accommodation. As the 

annual receipts of the business exceed R120 000, Hein can register voluntarily for VAT (still 

below the mandatory registration threshold of R1 million). 

Should Hein decide to register, he will have to levy output tax on the supply of the 

domestic goods and services (being a taxable supply) as follows: 

• guests staying 28 days and less: 100% of the charge is subject to VAT at 15% (for 

example three nights at R220 × 100% × 15% = R99 output tax), and 

• guests staying more than 28 days at a time: only 60% of the charge is subject to VAT at 

15% (for example 30 nights at R220 × 60% × 15% = R594 output tax). 

Hein will be entitled to an input tax deduction for VAT paid on the acquisition of goods 

and services for the purposes of the B & B business. This is because he is making taxable 

supplies. 

Should Hein decide not to register for VAT purposes, he does not have to account for 

output tax, but then he will not be entitled to any input tax deductions.

Example 

Jo Ndlovu is a property magnate and a vendor. During the current tax 

period Jo earned the following amounts: 

Letting of townhouses (purely for residential purposes) 42 000 

Short-term stay (less than 28 days) in bed and 

breakfast hotels (including VAT) 15 000 

Board and lodging in boarding houses (all periods 

longer than 28 days – excluding VAT) 30 000 

R 

Calculate the output tax in respect of the income earned.

Solution 

Letting of townhouse, hiring of a dwelling, 

which is an exempt residential supply 

Rnil 

Bed and breakfast, commercial accommodation 

R15 000 × 15/115= 1 956.52 

Board and lodging, long-term commercial 

accommodation (R30 000 × 15% × 60%) 2 700

Example 

Assume the all-inclusive daily rate at a hotel is 

R500 per day (excluding VAT). Included in the 

R500 daily rate is the use of a post-box. 

Calculate the VAT if 

(a) the person stays in the hotel for four days, 

and 

(b) the person stays in the hotel for 35 days.

Solution 

(a) Full supply at standard rate (R500 × 4 × 15%) 

– output tax 

(b) Supply of the post box that is included in the 

all-inclusive daily rate – output tax nil 

Supply of commercial accommodation together 

with domestic goods and services (R500 × 35 × 

60% × 15%) – output tax

Other exempt supplies 

Transport of fare-paying passengers and their personal effects by road 

or railway within SA in a bus or taxi (not a game-viewing vehicle ) 

• N/A to air tickets (only road or railway) 

• N/A for courier service (passengers and personal belongings, not 

goods) 

• N/A if not charged separately for it (fare-paying)

Other exempt supplies 

Remember: 

• Travel by road or railway of fare-paying passengers within SA is 

an exempt supply. 

• Travel by air when any leg of the ticket is outside SA, is a zerorated 

supply. 

• Travel by air in SA is a standard rated supply. 

• Travel in a game viewing vehicle or hearse is subject to VAT at 

the standard rate.

Other exempt supplies (cont.) 

• Supply of qualifying educational services by the State, a 

school, a public higher education institution (s 12(h)(i)) 

• The supply by a school, university, technikon or college, 

solely or mainly for the benefit of its learners, of goods 

or services (including domestic goods or services) for a 

consideration in the form of school fees, tuition fees or 

payment for board and lodging (s 12(h)(ii)) 

• Membership contributions to employee organisations, 

such as trade unions (s 12(i)) 

• The supply of childcare services by a crèche or an afterschool 

care centre (s 12(j))

Input VAT 

Can't claim VAT if not 

used for making taxable 

supplies = DENIED 

Claim input VAT 

To extent consumed for 

purposes of making 

taxable supply 

May claim: 

Input tax amount 

x 

% taxable supplies 

(apportion) 

If ≥ 95%, deem 100% 

See next slide 

Tax 

invoice 

Only claim if: 

• Have necessary documentation 

• Purchased from a vendor (except 2 nd hand goods) 

Can't claim 

as no VAT 

was charged

INPUT VAT 

Payment of goods and services 

supplied TO the vendor for making taxable supplies 

RECEIVABLE by the vendor

Tax invoices (ss 16(2) and 20) 

• Tax invoice should be issued for supply > R50 

• Must supply invoice within 21 days 

of the date of supply

Tax invoices 

Where supply > R5 000 the following must appear on the 

tax invoice: – must be in R (except if zero-rated) 

Supply > R5 000 

the words ‘tax invoice’ 

name, address and VAT registration number of supplier 

name, address and VAT registration number of recipient 

invoice number & date 

description of the goods or services supplied 

Quantity/volume of the goods or services supplied 

either: the value of the supply, VAT charged and consideration OR 

consideration paid, VAT amount/statement that VAT charged & rate

Tax invoices 

Where supply ≤ R5 000 the following must appear on the 

tax invoice: – must be in R 

Supply ≤ R5 000 

the words ‘tax invoice’ 

name, address and VAT registration number of supplier 

invoice number & date 

quantity/volume of the goods or services supplied 

either: the value of the supply, VAT charged and consideration OR 

consideration paid, VAT amount/statement that VAT charged & rate

Debit/Credit notes 

When a 

supply is 

cancelled 

Amount VAT on tax invoice < actual VAT charged = issue a debit note 

Amount VAT on tax invoice > actual VAT charged = issue a credit note 

Charged output tax 

on supply 

previously 

Claimed input tax 

previously 

Δ in amount of output tax that 

should be charged (necessary 

documentation) 

Δ in amount of input tax that 

should be claimed (necessary 

documentation) 

Output > 

Additional 

output tax 

Output < 

Claim 

input tax 

Input > 

Additional 

input tax 

Input < 

Pay output 

tax

Method of apportionment - Turnoverbased 

method 

• Total taxable supplies being expressed as a % of total supplies 

Formula: 

A = B × C/D where: 

A = deductible input tax 

B = total input tax 

C = value of taxable supplies 

Amounts 

excl. VAT 

D = value of all supplies (taxable and exempt) 

% taxable usage (C/D) is calculated once per year – used to apportion

Special apportionment method 

• Vendor may use an alternative apportionment 

method 

– For example the floor space method, the 

transaction based method and the employee time 

method 

• If the turnover-based method does not yield a 

fair approximation of the extent of taxable 

supplies 

• Prior approval by SARS.

Denial of 

input tax

Input Tax: Denial of input tax (s17(2) 

Entertainment 

Motor cars 

Club membership fees and 

subscriptions

Denial of input tax: Entertainment 

• Provision of: 

Definition 

– Food/beverages 

– Accommodation 

– Entertainment/amusement

Denial of input tax: Entertainment 

Input NOT denied: 

• Entertainment business if: 

– Amount charged covers all direct and indirect costs or = open-MV 

– No amount charged but for for bona fide promotional purposes 

– Any excess food, not consumed by the customers during a taxable 

supply, is subsequently given to employees/welfare organisations 

• Any meal/accommodation to an employee required to be away 

from his usual place of residence and work ≥ 1 night. 

• Vendors operating taxable (not exempt) passenger transport 

services. 

• Vendors organising seminars/similar events for reward. 

• Vendors who receive bets in respect of the outcome of a race or 

any other event where the entertainment is continuously 

supplied as a prize to its customers.

Denial of input tax: Club membership 

fees and subscriptions 

• fees or subscriptions for membership 

of any club/association of a sporting… 

• input not denied: 

– Professional membership of the 

accounting profession

Denial of input tax: Motor cars 

Definition of a motor car 

Includes 

Motor vehicle 

Station wagon 

Minibus 

Double-cab light delivery vehicle 

Any other motor vehicle normally used on 

public roads, that has 3/more wheels for 

carriage of passengers 

INPUT 

DENIED


Definition of a motor car 

Excludes 

Vehicles capable of transporting only 1 person / > 16 persons 

Vehicles ≥3 500 kg 

Caravans 

Ambulances 

Vehicles not capable of transporting passengers 

Game-viewing vehicles (carry ≥ 7 passengers for game-viewing) 

Hearses


Complies with def of motor car = INPUT DENIED 

can claim input 

Exceptions – when a vendor is: 

A car-dealer 

Runs a car-hire business 

Acquired vehicle to award as a prize 

Are allowed to claim input on insurance/maintenance of a motor vehicle 

Except if not separately indicated on tax invoice – then denied

Deemed input tax on second-hand 

goods (ss 1, 18(8) and 20(8)) 

• Second-hand goods 

• Acquired from a non-vendor in SA 

• May claim deemed input VAT 

• 15/115 x lessor of purchase price/open-MV 

(even though no VAT has been paid) 

Goods previously 

owned and used 

Excl. animals and goods 

containing gold 

• Claimed to the extent payment has been made 

Incl. 

VAT

Example: Second hand goods 

Simuyne (Pty) Ltd, a vendor for VAT purposes, 

acquired a second-hand delivery bicycle from a 

non-vendor for use in its business. The 

purchase price of the delivery bicycle was R630 

and the market value was R780. The purchase 

price was paid in full. 

Determine whether any input tax may be 

claimed in respect of the purchase.

Solution 

Because the vendor has purchased a second-hand 

bicycle from a person not registered for VAT purposes, a 

deemed input tax credit can be claimed for the secondhand 

bicycle. The deemed input tax credit is based on 

the lower of the consideration paid (R630) or openmarket 

value (R780). 

The deemed input tax is calculated as follows: 

Tax fraction × consideration paid 

15/115 × R630 = 82.17

Second-hand goods exported 

Zero rating N/A if notional input was claimed 

by vendor/connected person of the vendor 


purchase price of supplier 

If supplier purchased 

goods from 

connected person 

who claimed deemed 

input 

Greater of purchase price to 

vendor/connected person 

Zero-rating only 

applies to mark-up

Example: Second hand goods 

exported 

ABC CC buys scrap metal from a non-vendor for 

R6 000 and claims a deemed input tax 

deduction of R737 (R6 000 × 15/115). 

Explain the VAT consequences if: 

(a) ABC CC exports the goods for R7 000, and 

(b) ABC CC exports the goods for R4 000.

Solution 

(a) ABC CC will be required to account for output 

tax equal to the notional input tax claimed of R737. 

The output tax is based on the purchase price, 

irrespective of the selling price. 

(b) ABC CC will again be required to account for 

output tax equal to R737, although the selling price 

of the goods is less than the purchase price. The 

output tax is based on the original purchase price, 

irrespective of the selling price.

Example: Connected persons 

A buys second-hand goods for R2 000 and 

claims a notional input tax deduction of R246, 

then sells them to B, a connected person, for R1 

800. B claims an input tax deduction of R221 

based on the tax invoice provided by A. B 

exports the goods for R1 980. 

Explain the VAT consequences in respect of the 

export.

Solution 

B will be required to account for output tax of 

R246 which is equal to the deemed input tax 

claimable by A, a connected person.

Example 

Speedy purchased a motor car, a coffee machine for the canteen 

and a printer. He paid the following for these items: 

• Motor car: R143 000 (including VAT – input tax denied) 

• Coffee machine: R457 (including VAT – input tax denied) 

• Printer: R6 900 (including VAT) 

He then sells all three items. 

Explain the VAT consequences relating to the purchase and sale 

of the motor car, coffee machine and the printer.

Solution 

Provided Speedy acquired the printer for the purposes of 

making taxable supplies, he will be able to claim an input 

tax deduction on the acquisition of the printer amounting 

to R900 (R6 900 × 15/115). No input tax will be claimable 

on the acquisition of the motor car and coffee machine, as 

input tax deductions are specifically denied on the 

acquisition thereof. 

Speedy will be required to levy output tax on the sale of 

only the printer, since the said supply will be made in the 

course or the furtherance of his enterprise. Speedy will not 

be required to account for any output tax on the sale of 

the coffee machine and motor car, since Speedy was 

denied input tax deductions on the acquisition of these 

items.

Special rules 

• Instalment credit agreements and 

• Fixed property

Special rules – Instalment credit 

agreements 

Instalment credit agreements 

Suspensive sales and finance leases 

• supply for payment in future/instalments over a period 

• payment incl. finance charges 

• amount payable > cash value of supply (sold @ profit) 

Risk of ownership 

passes to purchaser 

Difference 

Suspensive sale 

• date when terms of agreement has been 

complied with 

Finance lease 

• date lease agreement has been concluded

Special rules – Instalment credit 

agreements 

Instalment credit agreements 

Value of the supply 

Cash sale value (excl interest) 

Why? 

Time of the supply 

Earlier of 

• Payment 

• Delivery 

Exception 

If the buyer has the right to return the 

goods within a certain time 

Then time of supply is when 'coolingoff' 

period of 5 days has expired

Example (finance lease) 

A bank enters into a finance lease on 15 May of the current tax year for 

the lease of a ‘motor car’ to a clothing manufacturer, as follows: 

R 

Cost of motor car 98 246 

VAT 14 737 

112 983 

Finance charges 39 200 

152 183 

The agreement states that 36 monthly instalments of R4 200 (including 

VAT) are payable. The motor car was delivered on 1 June. The motor car 

is a ‘motor car’ as defined for VAT purposes. 

Discuss the VAT implications of the above transaction if both parties 

have a 1 month tax period.

Solution (finance lease) 

The bank has to account for output tax on the 

cash value (excl. interest) of the car of (R112 

983 × 15/115) on 1 June. 

The interest is a financial service – an exempt 

supply. 

The manufacturer is not able to claim any input 

tax deduction, since the vehicle is a ‘motor car’ 

as defined.

Example (suspensive-sale agreement) 

Assume the same information as in the previous 

example, except that it is now a delivery vehicle 

acquired in terms of a suspensive-sale agreement, 

which provides for a deposit of R14 000 payable on 

15 May of the current tax year. 

The monthly instalments are R3 675, and finance 

charges totalling R34 300 will be paid over the 36- 

month period. 

Discuss the VAT implications of the above 

transaction.

Solution (suspensive-sale agreement) 

• The only difference is that the bank now has to 

account for output tax of R14 737 (R112 983 × 

15/115) on 15 May. This is also the date on which 

the manufacturer can claim the input tax of R14 

737, assuming that the delivery vehicle will be 

used exclusively to make taxable supplies. 

• With regard to a suspensive-sale agreement, 

when a deposit is paid, it is immediately applied 

in reducing the total consideration due.

Special rules – Fixed property 

If supply is subject to 

VAT – NO transfer 

duty payable 

IF no VAT then transfer duty 

0-900 000 0% 

900 001 - 1 250 000 3% of the value above 900 000 

1250 000 – 1 750 000 10 500 + 6% of the value above R 1 250 000 

1 750 001 -2 250 000 40 500 + 8% of the value above R 1 750 000 

2 250 001 – 10 000 000 80 500 +11% of the value above R2 250 000 

10 000 001 and above 933 000 + 13% of the value above R10 000 000

Special rules – Fixed property 

Time of supply 

Supplied by a 

vendor in the 

course of 

furtherance of 

an enterprise 

Not supplied 

in the course of 

furtherance of 

an enterprise 

Sale between 

connected 

persons @ MV 

Other 

By a nonvendor 

By a vendor 

E.g. house used 

for residential 

purpose 

Earlier of: 

• Date of registration 

• Date of any payment 

Only account for VAT to 

the extent of payment 

Purchaser may claim 

deemed input to the extent 

used for making taxable 

supplies to the extent of 

payment 

If invoice basis – can only claim 

once property is registered (to 

extent of payment)

Example 

Venter and Naidoo CC purchased a house from a non-vendor 

(South African resident) for a consideration equal to the openmarket 

value of R350 000 (they are not connected persons). 

Venter and Naidoo CC will use the house for the purposes of 

making taxable supplies. As the value of the fixed property is 

below R900 000, no transfer duty is payable on the transfer of 

the fixed property. The registration of the property in the 

name of Venter and Naidoo CC occurred on 15 April 2014. 

Venter and Naidoo CC borrowed money from ABC Bank and 

paid the full R350 000 to the non-vendor on 20 March 2014. 

Determine when and to what extent input tax may be claimed 

in respect of the purchase of the house. Take note that the CC 

is registered on the invoice basis.

Solution 

Because the vendor has purchased second-hand fixed property from a South African 

resident, deemed input tax may be claimed for the house. 

The deemed input tax credit is calculated as follows:Tax fraction × lesser of consideration 

paid or market value = 15/115 × R350 000 = 45 652 

Although the full consideration for the supply was paid on 20 March 2018, the actual 

registrationof the house in the name of Venter and Naidoo CC only occurred on 15 April 

2018 and the full deemed input tax may be claimed only after registration – in the tax 

period covering April 2018. 

If it is assumed that only 80% of the house will be used by Venter and Naidoo CC for 

taxable purposes, the calculation for the allowable input VAT would have been as follows: 

R350 000 × 15/115 × 80% = R36 522 

If the house was purchased by a natural person who is registered on the payments basis, 

the input tax will be claimable to the extent that payment has been made for the 

consideration. Let us assume that the natural person is going to use 80% of the house for 

taxable purposes, and that only R300 000 of the consideration has been paid on 20 March 

2018. The input tax will then be as follows:15/115 × R350 000 × 80% × R300 000/R350 000 

= R39 130


PAYABLE on the supply BY the vendor

Deemed supplies (ss 8, 8A and 

18(3))

Deemed supplies 

• Ceasing to be a vendor 

• Indemnity payments 

• Fringe benefits 

• Payments exceeding consideration 

• Other

Ceasing to be a vendor

Ceasing to be a vendor 


NO output if 

input was denied 

Goods 

Account for output VAT on: 

Outstanding balances owing 

to suppliers ≤12 months 

Lessor of: 

• cost OR 

• open-MV on date ceasing 

to be a vendor 

Only to the extent that input were 

claimed on the supply that gave 

rise to the outstanding balance 


immediately before the vendor ceases to be a vendor

Indemnity payments

Indemnity payments 

What is reason for this deemed supply rule? 

• Insurance premiums paid under a short-term 

insurance policy – vendor may claim input vat 

when receive claim – has to account for output 

VAT 

Financial service 

= exempt 

• No input/output on long-term insurance 

No deemed supply where payments: 

• Are not related to taxable supplies 

• If input tax on the goods were denied (e.g.motor car)

Deemed supply: 

Indemnity payments 


15/115 

x consideration received 

x % that relates to taxable supplies 


date of receipt of that payment or the 

date of payment to another person 

• Insurer replaces damaged/stolen goods = NO output tax 

consequences (no indemnity payment) 

• Payment is made to a 3rd party to indemnify the vendor = 

vendor has to pay output tax

Example 

Manufacturers Ltd recently suffered a robbery at its 

premises. Their insurance company reimbursed them in cash, 

as follows: 

R 

• For delivery vehicle stolen 132 000 

• For passenger vehicle stolen (input tax 

was denied with purchase) 100 000 

• For microwave oven in canteen stolen 

(input tax was denied with purchase) 2 500 

Calculate the output tax in respect of the insurance 

payment received.

Solution 

• Delivery vehicle, not motor car as defined, could claim input 

tax in the past R132 000 × 15/115 

• Passenger vehicle, motor car, total reinstatement of goods 

where input tax originally denied – thus no output tax liability 

• Microwave oven, entertainment, total reinstatement of 

goods where input tax originally denied – thus no output tax 

liability

Example 

Ohno recently experienced flooding of the ground floor at the 

premises rented from Agnee CC. 

Ohno’s insurance company replaced the following items: 

• Computers R48 000 

• Desks and chairs R80 000 

• Cupboards R12 500 

Their insurance company also reimbursed Ohno in cash for other 

losses suffered as follows: 

• Fittings R93 600 

The insurance company also paid Agnee CC for damages suffered 

amounting to R36 000. 

Calculate the output tax in respect of the insurance payments and 

replacements.

Solution 

Ohno is not required to account for output tax on 

the replacements by the insurance company, since 

these replacements are not payments in money. 

With regard to the fittings on which input tax could 

be claimed in the past, output tax of R12 209 

(R93 600 × 15/115) must be accounted for. 

Ohno is indemnified by the payment of an amount 

of money to a third party and must account for 

output tax of R4 696 (R36 000 × 15/115).

Apportionment of VAT 

k 

Output VAT is never apportioned for % it 

relates to taxable supplies 

2 EXCEPTIONS: 

• Fringe benefits 

• Indemnity payments 

(Only to the extent it relates to taxable 

supplies)

Example 

BB 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 BB Bank’s output tax liability.

Solution 

R14 230 × 15/115× 40% = R742,43 output tax 

payable to SARS BB Bank’s output tax liability is 

apportioned according to 40% taxable supplies 

made. With the initial purchase of the 

computer as well as with the monthly insurance 

premiums paid, BB Bank was only entitled to 

40% of the input tax.

Fringe benefits

Deemed supply: Fringe benefits 

Intended to reverse portion of the input tax previously 

claimed by the vendor. 

Not salaries 

ONLY applicable to fringe benefits per 7 th Schedule to the 

Income Tax Act. 

No deemed supply if the fringe benefit relates to: 

• an exempt supply 

• a zero-rated supply, or 

• the supply of entertainment (e.g. meals)

Fringe benefits 

The following fringe benefits are subject to VAT 

• Assets given to employees 

• Right of use of an asset given to an employee (example: use of 

a company car) 

• Services made available to the employee for private purposes 

• Release of debt owed to his employer


Examples of fringe benefits not subject. 

• Allowances (e.g. travel allowance) 

• Subsidies (supply of money). 

• Supply of meals and refreshments 

Not 7 th 

schedule FB 

Excl. from 

def of goods 

Entertainment 

– input denied 

• Residential housing 

Exempt 

supply 

• Interest-free and low-interest loans 

Financial service 

- Exempt supply



(other than the use of a motor vehicle) 

Output tax = cash equivalent for income tax purposes x 15/115 

Apportioned to the extent that it relates to the making of taxable 

supplies. 

Employee is recipient of the fringe benefit BUT payment of output tax 

is the obligation of the employer and not the employee.


Calculation of output tax in respect of the 

use of a motor vehicle:

Calculation of output tax in respect of the use of a motor vehicle: 

Step 1: Determine the value of the motor vehicle (excl. VAT and 

finance charges (Determined value) 

Reduce determined value: depreciation on reducing-balance method @ 

15% for each completed 12 months from the date which vendor first 

obtained vehicle, to date when employee was granted the right of use 

Step 2: Determine the consideration for the use of the motor vehicle 

• x 0.3% if input tax was denied (motor car) 

• x 0.6% if input tax was claimed (any other vehicle) 

Step 3: Deduct the following: 

• Input tax claimed: amounts paid by the employee to the employer, 

excl. finance charges and fuel 

• Input tax denied: amounts paid by the employee to the employer, 

excl. finance charges, fuel and fixed cost of the motor car 

• R85 if the employee bears the full cost of repairs and maintenance 

Step 4: x 15/115 

Step 5: x taxable usage 

PER MONTH

Example 

An employer grants an employee the right of use of a 

motor car fully used for taxable supplies. The 

employer was unable to claim the input tax when the 

vehicle was purchased for R159 600 (including VAT). 

The employee bears the full cost of maintaining the 

vehicle. 

Calculate output tax for one month in respect of the 

fringe benefit.

Solution 

Output tax: 

Step 1: R159 600 × 100/115 = R138 783 

Step 2: R138 783 × 0,3% = R416 

Step 3: R420 – R85 = R331 

Step 4: R335 × 15/115 = R43,22 

Step 5: R43,22 × 100% = R43,22 output tax payable 

If the vehicle had not been a motor car but a delivery vehicle, the 

employer would have been able to claim the VAT paid on the vehicle as an 

input tax credit (R159 600 × 15/115 = R20 817), and output tax would have 

been calculated as follows: 

Step 1: R159 600 × 100/115 = R138 783 

Step 2: R138 783 × 0,6% = R833 

Step 3: R833 – R85 = R748 

Step 4: R748× 15/115 = R97,57 

Step 5: R97,57 × 100% = R97,57 output tax payable

Example 

An employee is granted the use of a company-owned motor 

car (input tax denied) with a determined value of R160 000, 

that is fully used for taxable purposes. The employee pays 

R600 per month that is allocated as follows: 

• Fuel 112 

• Insurance 150 

• Maintenance 70 

• Interest 168 

• Fixed costs of car 100 

Total 600 

Calculate the VAT consequences of the above.

Solution 

Step 1: R160 000 (determined value already excludes VAT) 

Step 2: R160 000 × 0,3% = R480 

Step 3: R480 – R150 (insurance) – R70 (maintenance) = R260 

• The fuel (zero-rated), interest (exempt), and fixed cost (input tax denied) 

are not deductible. 

Step 4: R260 × 15/115 = R33,91 

Step 5: R33,91 × 100% = R33,91 output tax per month payable by the 

employer on the fringe benefit 

• Additional output tax on consideration received: 

The employer must also account for output tax on the consideration paid 

by the employee to the employer in respect of the insurance and 

maintenance. (The employer probably claimed the VAT on these expenses 

paid by him.) 

R150 + R70 = R220 × 15/115= R21,29 output tax

Example 

The use of a delivery truck, with a determined value of 

R35 000, of which 60% was used for taxable supplies 

and 40% for non-taxable supplies, is granted to an 

employee. The employee pays R80 for fuel to the 

employer. 

Calculate the VAT consequences of the above.

Solution 

Step 1: R35 000 (determined value already excludes VAT) 

Step 2: R35 000 × 0,6% = R210 

Step 3: R210 – Rnil = R210 

• No deduction for fuel – zero-rated (note) 

Step 4: R210 × 15/115= R27,39 

Step 5: R27,39 × 60% = R16,43 

• Note 

The fact that the employee also pays for the fuel does 

not give rise to another output tax, because it is a zerorated 

supply.



• the end of the month in which fringe benefit is 

granted to the employee. 

• if not required to be incl. on a monthly basis, the last 

day of the yoa of the employee.

Payments exceeding 

consideration

Payments exceeding consideration 

• If amount received i.r.o. taxable supply > consideration charged and 

• Amount not refunded within 4 months 

• Then excess payment = deemed to be consideration for services 

supplied 

• If excess payment is refunded after output tax has been accounted for, 

vendor will be entitled to claim an additional input tax credit 

Value of supply: 

• The excess portion of the payment received. 

Time of supply: 

• The time of supply is deemed to be the last day of the tax period during 

which the 4-month period ends.

Other

Connected persons 

Time of 

supply 

• Time of removal (removal of goods) 

• Time made available (if goods not to be 

removed) 

• Time of supply of (service) 

Value of 

supply • Open-MV 

If connected 

person was not 

able te claim 

FULL input VAT

Value vs consideration of a supply 

Value of a supply 

Consideration for a 

supply 

Amount excl. VAT 

Amount incl. VAT

Adjustments: Irrecoverable debts

Adjustments: Irrecoverable debts 

E.g. sales 

Accounted for output tax in respect of a taxable supply 

All/part of the consideration becomes irrecoverable 

Claim input tax deduction of amount written off 

No adjustment needed if 

zero-rated supply 

If debt recovered again – pay output tax on amount recovered

Example 

For accounting purposes, Talita (Pty) Ltd wrote 

off R4 633 as bad debts. This amount comprises 

an amount of R2 850 owing by a local debtor 

and an amount of R1 783 owing by an export 

sale debtor. 

Calculate the VAT consequences of the above 

in the books of Talita (Pty) Ltd.

Solution 

Local debtors – Claim input of R2850 x 15/115 

Export debtors – R1 783 – no adjustment needed 

if zero-rated supply

Adjustments: Irrecoverable debts 

Vendor who does not pay his creditors within 12 months 

Vendor (invoice basis) – claimed input tax (eg. Purchases) 

Full consideration not paid within 12 months from end of tax 

period deduction was claimed 

Account for output tax of 15/115 x unpaid consideration

Cancellation of registration 

• Apply in writing 

• No longer satisfies the requirement for been 

registered 

• Ceases to carry on an enterprise (Advise SARS 

within 14 days before deregistration) 

• SARS can also decides on its own to cancel a 

person’s registration (supplies

Record Keeping, penalties and Interest 

• Keep records for 5 years 

• Record on how the system works, how output 

and input VAT was calculated 

• Keep record of invoices, books of accounts. 

VAT calculations, banks statements, deposit 

slips etc 

• Late payment – pay penalty of 10%plus 

interest on the prescribed rate 

138

139

140

The influence of VAT on income tax 

calculations

TX-ZAF_Slides_VAT_Lecture Notes_Day6

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