1. VAT Lecture 2

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

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

4. 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

5. 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 0%

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

7. 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

8. 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???

9. 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

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

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

12. 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

13. 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

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

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

16. 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%)

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

18. 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

19. 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

20. 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

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

22. 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 R
For passenger vehicle stolen R
For microwave oven in canteen stolen R
Calculate the output tax in respect of the insurance payment received
Source: Silke

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

24. 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 R from its insurer
Calculate Boston bank’s output tax liability (round off your calculations to the nearest rand)

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

26. 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