TAX4862 NTA4862 Tutorial Letter 103/0/2021 - Applied Taxation - Unisa
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TAX4862/103/0/2021
NTA4862/103/0/2021
Tutorial Letter 103/0/2021
Applied Taxation
TAX4862
NTA4862
Year module
Department of Financial Intelligence
This tutorial letter contains learning units 2 and 3 as well
as self-assessment questions.
Bar code2 TAX4862/103/2021
TABLE OF CONTENTS
ORIENTATION ............................................................................................................................ 4
I. INTRODUCTION ............................................................................................................... 4
II. STUDY PROGRAMME AND TIME FRAME ..................................................................... 4
III. ABBREVIATIONS ............................................................................................................. 5
IV. BEANCOUNTER SCENARIOS ........................................................................................ 5
V. LECTURERS .................................................................................................................... 5
VI. IMPORTANT DATES FOR THIS TUTORIAL LETTER .................................................... 5
VII. ADDITIONAL RESOURCES ............................................................................................. 6
WORK PLAN FOR DAY 1 (23 FEBRUARY 2021) ...................................................................... 7
SECTION A ................................................................................................................................. 7
1 INTERPRETATION OF LEGISLATION ............................................................................ 7
2 DONATIONS TAX ............................................................................................................. 7
2.1 BACKGROUND .........................................................................................................................7
2.1.1 UNGC Principle 10 .............................................................................................................. 8
2.2 OUTCOMES OF THIS LEARNING UNIT ...................................................................................8
2.3 BEANCOUNTER SCENARIO ....................................................................................................8
2.4 CONTENT FOR LEARNING UNIT 2 ..........................................................................................9
2.4.1 Study approach ................................................................................................................... 9
2.4.2 Table of Reference ............................................................................................................ 10
2.4.3 Sections in SILKE you may ignore .................................................................................... 11
2.5 LAW AMENDMENTS ...............................................................................................................11
2.6 ADDITIONAL NOTES ..............................................................................................................14
2.6.1 Framework for the calculation of donations tax.................................................................. 14
2.6.2 Impact of donations on other taxes.................................................................................... 15
2.7 OUTCOMES OF THE BEANCOUNTER SCENARIO ...............................................................16
2.8 SUMMARY OF LU 2 ................................................................................................................16
2.9 LIST OF REFERENCES OF LU 2 ............................................................................................16
WORK PLAN FOR DAYS 2 - 5 (25 – 28 FEBRUARY 2021) .................................................... 17
3 VALUE-ADDED TAX (VAT) ............................................................................................ 17
3.1 BACKGROUND .......................................................................................................................17
3.1.1 UNGC Principle 10 ............................................................................................................ 17
3.2 OUTCOMES OF THIS LEARNING UNIT .................................................................................18
3.3 BEANCOUNTER SCENARIO ..................................................................................................18
3.4 CONTENT FOR LEARNING UNIT 3 ........................................................................................20
3.4.1 Study approach ................................................................................................................. 20
3.4.2 Table of Reference ............................................................................................................ 223 TAX4862/103/2021
3.4.3 Sections in SILKE you may ignore .................................................................................... 25
3.5 LAW AMENDMENTS ...............................................................................................................26
3.6 ADDITIONAL NOTES ..............................................................................................................27
3.6.1 Mind map representing an overview of VAT ...................................................................... 27
3.6.2 Mind map of the supply of goods and services – OUTPUT TAX ........................................ 29
3.6.3 Services - SILKE par 31.5.3 .............................................................................................. 29
3.6.4 Exempt supplies: Other (including transport of fare-paying passengers and their personal
effects by road or rail) - SILKE par 31.11.4 ........................................................................ 30
3.6.5 Deemed supplies: Ceasing to be a vendor - SILKE par 31.12.1 ........................................ 31
3.6.6 Time and value of supply - SILKE par 31.15 and 31.16 ..................................................... 33
3.6.7 Basics of input tax - SILKE par 31.17 ................................................................................ 40
3.6.8 Input tax: Denial of input tax - SILKE par 31.21 ................................................................. 41
3.6.9 Input tax: Importation of goods - SILKE par 31.8 ............................................................... 42
3.6.10 Special rules: fixed property - SILKE par 31.24 ................................................................. 42
3.6.11 Adjustments arising from the change in the use of goods or services or supplies of going
concerns or leasehold improvements - SILKE par 31.25 to 31.31 ..................................... 44
3.7 OUTCOMES OF THE BEANCOUNTER SCENARIO ...............................................................49
3.8 SUMMARY OF LU 3 ................................................................................................................49
3.9 LIST OF REFERENCES OF LU 3 ............................................................................................49
WORK PLAN FOR DAYS 6 - 7 (01 – 02 MARCH 2021) ........................................................... 50
SECTION B – SELF-ASSESSMENT QUESTIONS .................................................................. 50
SECTION C – PRIOR YEAR TEST ........................................................................................... 99
Please note
Due to Unisa's print schedule, this tutorial letter had to be submitted by December 2020 so that you would
receive it on time. The latest amendments had not yet been promulgated and this means that this tutorial
letter was based on the Amendment Bills as of October 2020. This should not affect the content of this
module. However, should there be any major changes between the Amendment Bills and the promulgated
Amendment Acts, we will communicate these to you.4 TAX4862/103/2021
ORIENTATION
I. INTRODUCTION
This tutorial letter is divided into two learning units. Learning unit (LU) 2 deals with donations tax and
LU 3 deals with VAT. The goal of this tutorial letter is to assist you in making the most of the time available
to master the topics in this tutorial letter. Follow the guidelines and try to keep to the allocated time
(remember that time allocations are based on the assumption that certain topics have already been
covered in your undergraduate studies).
II. STUDY PROGRAMME AND TIME FRAME
Your time should be divided into two parts:
Obtaining the required knowledge (24 hours)
This would entail working through this tutorial letter and the textbooks (SAICA Student
Handbook and SILKE), underlining, making summaries and familiarising yourself with the
VAT Act and the Income Tax Act (section A of this tutorial letter).
Application of knowledge and revision of difficult concepts (6 hours)
This would entail the completion of the self-assessment questions (sections B and C of
this tutorial letter).
We assume that you have three hours of study time on a weekday/night and 15 hours over a
weekend. We have based the work plan in this tutorial letter on this assumption.
Day Date Topic Hours
1 Wednesday 24 February 2021 LU 1 – Interpretation and application of
legislation in TL 102
(30 minutes)
LU 2 - Donations Tax in Section A 3
(2 hours and 30 minutes)
Question 1 of Section B
2&3 Thursday & 25 - 26 February 2021 LU 3 – VAT in Section A 6
Friday
4&5 Week-end 27 – 28 February 2021 LU 3 – VAT in Section A 15
6&7 Monday & 1 – 2 March 2021 Section B: self-assessment questions
6
Tuesday (Questions 2 – 15)
30 hours5 TAX4862/103/2021
III. ABBREVIATIONS
The list of abbreviations used in the tutorial letters is contained in TL 102. Please take note of the following
additional abbreviation relevant to this tutorial letter:
Abbreviation Meaning of abbreviation
OMV Open market value
IV. BEANCOUNTER SCENARIOS
Refer to TL 102 to meet the Beancounter family.
V. LECTURERS
The following lecturers compiled this tutorial letter:
Ms L Brits
Ms A Heyns
Ms M Ungerer
Please contact any of the tax lecturers should you have questions regarding this tutorial letter. You may
also send your queries (regarding administrative and academic matters) and comments via e-mail to
TAX4862@unisa.ac.za (note that e-mail correspondence is the preferred method of communication –
refer to TL 101 in this regard).
For queries regarding administrative matters, please contact the administrative officer at
+27 12 429 2947. For queries regarding academic matters, you can contact any of the lecturers directly
or you can contact the administrative officer. The administrative officer will put you in touch with the
relevant lecturer on duty.
VI. IMPORTANT DATES FOR THIS TUTORIAL LETTER
Date of test 1: TUESDAY, 23 March 2021
The topics covered in both TL 103 and TL 104 as well as any relevant case law in TL 102 will be assessed
in Test 1.6 TAX4862/103/2021
VII. ADDITIONAL RESOURCES
The following additional resources will be available at the start of your study week for each tutorial letter
to assist you in understanding and applying the tax principles. Please note that the additional resources
are merely an introduction to the topic and are NOT a substitute for working through the Tutorial Letter,
SAICA legislation handbook and relevant textbooks.
Find summary slides on myUnisa.
? Additional questions are available on myUnisa.
Find pre-recorded lectures and recordings of live lectures on our YouTube channel –
UNISA - TAX CTA Screencasts
(https://www.youtube.com/channel/UCnSJpIUZeHNsRSYpyTR5_Dg)7 TAX4862/103/2021
WORK PLAN FOR DAY 1 (23 FEBRUARY 2021)
SECTION A
Time allocation for learning units 1 and 2:
Interpretation and application of legislation (LU 1) (TL 102) 0.5 hours
Donations tax (LU 2) 2.5 hours
Total 3 hours
Note that this is a lot of work to master in the allocated time, however most topics would have
been covered in depth in your first year of postgraduate studies. You will probably not have
time to study every section in detail again but will have to rely on your prior knowledge. Where
necessary, you should refresh your memory regarding sections you already know.
1 INTERPRETATION OF LEGISLATION
The content of LU 1 is contained in TL 102. LU 1 will provide you with the skills on how to interpret
legislation.
Work through LU 1: "Interpretation and application of legislation" in TL 102. This should
assist you in the optimal use of the Student Handbook.
2 DONATIONS TAX
2.1 BACKGROUND
Donations tax is, although levied in terms of PART V of the Income Tax Act (sections 54 to 64), a separate
tax from income tax. It is payable on the transfer of assets from one person (not necessarily a taxpayer)
to another.
Take note that donations tax could also affect the calculation of capital gains tax, where an asset (as
opposed to cash) is donated. You therefore also have to refer to the applicable paragraphs in the Eighth
Schedule to the Income Tax Act.8 TAX4862/103/2021
2.1.1 UNGC Principle 10
The UNGC principles were introduced in TL102. Compliance with the laws and regulations is the basis on
which the taxation legislation is founded.
UNGC principle 10 states that businesses should work against corruption in all its forms, including extortion
and bribery. The definition of corruption includes dishonest or fraudulent conduct. Tax evasion would fall
within the ambit of corruption. UNGC principle 10 encourages entities to find a balance between the social
obligation to pay taxes and tax planning, in order to minimise the ‘cost’ of these taxes for an entity within
the ambit of the law. Since the making of donations are used by some entities as a means of tax evasion
(by reducing their tax base), it is important to take note of the UNGC principle 10 when studying this unit.
2.2 OUTCOMES OF THIS LEARNING UNIT
After studying LU 2, you should be able to achieve the following outcomes:
identify a disposal of property as a donation or deemed donation, or as
exempt from donations tax
calculate the donations tax payable on a donation
identify the person responsible for the payment of the donations tax and the
time period that the donations tax must be paid
explain any other tax consequences (including VAT and capital gains) that
may result from making a donation.
Before you start studying the detailed provisions of donations tax, you should first read the
following scenario relating to the Beancounter family. As you study the applicable sections in
the Income Tax Act, identify areas of concern that should be brought to the attention of the
Beancounter family.
2.3 BEANCOUNTER SCENARIO
Barry Beancounter is married in community of property to Bizzie Beancounter. Barry is a very charitable
person, as he made a number of donations during the year.
He donated R40 000 cash to the Butterbean Family Trust, R20 000 cash to his lovely wife, Bizzie, and
R20 000 cash to each of his children, Jelly and Soya Beancounter.
He also donated R5 000 to the B.E.A.N. political party.
Barry is considering whether or not to sell a property with a market value of R500 000 to the
Butterbean Family Trust, funded by an interest-free loan account. This property is excluded from Barry
and Bizzie’s joint estate. The journal entry will be recorded as follows in the financial records of the
trust:9 TAX4862/103/2021
Dr Property R500 000
Cr Loan account: B Beancounter R500 000
He also is also considering whether he should make another donation to the trust utilising the rest of
his R100 000 annual exemption (remember there is an existing loan [see above] that the trust owes
Barry).
All cash donations (except for the donation to Bizzie) were made (and in future will be made) from
funds available in an investment account. This investment is included in Barry and Bizzie’s joint estate.
Barry is, however, uncertain about the donations tax and capital gains tax implications (if any) that may
arise from the above donations he made during the year, as well as those that he is considering and he
has therefore asked you to assist him.
Before attempting to assist Barry with his donations tax and capital gains tax query, you should
first work through and master the applicable sections in the Income Tax Act relating to
donations tax. The outcomes for the Beancounter scenario will be made available on myUnisa
during your study week for this learning unit.
2.4 CONTENT FOR LEARNING UNIT 2
2.4.1 Study approach
We provide you with a Table of Reference which contains the references to all the sections which must be
studied in this learning unit together with a reference to the relevant paragraph in SILKE and a reference
to additional notes provided (if any) in the tutorial letter, as well as an indication of whether a specific
section is examinable or not. The Table of Reference is presented in such a way that you should use it to
guide you through the content of the learning unit in this tutorial letter. You should therefore work your way
through the content by starting at the top of the table and working your way through to the end.
The ideal way to study tax is to first read the specific section in the Income Tax Act and then to
study the relevant paragraph(s) in SILKE together with any additional notes on that section
included in this tutorial letter. We recommend that you study any additional notes on the section first
before working through the paragraph(s) in SILKE. Also work through the examples in SILKE, because
the examples illustrate the application of the theory of a section.
We are not ignorant of the fact that most of our students study part time. We therefore realise that you
may not always have the time available to follow the above study approach fully, with specific reference to
our recommendation that you first read a section in the Income Tax Act. However, you still need to flag
and underline your Income Tax Act in order for you to benefit from the limited open book policy for the
tests, the examination and the 2021 ITC (for TAX4862 students).
SILKE has a Table of provisions towards the back (just before the Subject index). This is a handy table to
use if you have a specific section on which you need more information. The table provides the paragraphs
in SILKE which contain information on a specific section.10 TAX4862/103/2021
2.4.2 Table of Reference
Reference Reference
Reference to
to Income Topics to notes in Examinable
SILKE
Tax Act the TL
Day 1: Wednesday 23 February 2021 (2.5 hours)
Sections Donations tax
54 to 64
Framework for the calculation of donations tax 26.1 2.6.1
s 54 Levy of donations tax 26.1 – 26.2 Yes
s 64 Rate of donations tax 26.2 2.5 Yes
s 55 Definitions for purposes of this part 26.3 – 26.4 Yes
s 58(1) Property disposed of under certain transactions 26.5 Yes
deemed to have been disposed of under a
donation
s 58(2) No
s 7C Loan or credit advanced to a trust by a 26.10 2.5 Yes
connected person (also
(Effective 1 March 2017) TL107)
s 7C(5)(a), (b), (c), (f) & (h) No
S 7D Calculation of amount of interest 26.10 Yes
(also
TL107)
s 56 Exemptions 26.6 2.6.2 Yes
s 56(1)(o) No
s 57A Donations by spouses married in community of 26.7 Yes
property
s 57 Disposals by companies under donations at the 26.8 Yes
instance of any person
s 62 Value of property disposed of under donations 26.9 – 26.9.1 Yes
s 62(1)(a)–(c): the value of limited interests in 26.9.2 – 26.9.4
property and annuities will be given
s 59 Persons liable for the tax 26.11 Yes
s 60 Payment and assessment of the tax 26.11 Yes
s 61 Extension of scope of certain provisions of Act No
for purposes of donations tax
Other tax consequences of donations (refer 26.12
below)
8th Sch Donations and Capital Gains Tax
Disposals and acquisitions
par 11(1) Disposals 17.7.1 Yes
Base cost
par 20 Base cost of asset Yes
(Only the basic principles)
par 22 Amount of donations tax to be included in base 17.8.7 Yes
cost
Proceeds
par 38 Disposal by way of donation, consideration not 17.9.5 Yes
measurable in money and transactions between
connected persons not at an arm’s length price11 TAX4862/103/2021
Reference Reference
Reference to
to Income Topics to notes in Examinable
SILKE
Tax Act the TL
Exclusions
par 62 Donations and bequests to public benefit 17.10.2 Yes
organisations and exempt persons
Roll-overs
S 9HB Transfer of asset between spouses 17.10.3.3 Yes
Questions and examples
Work through Example 26.16 in SILKE 26.13
Do Question 10.1 in AQSAT
Do Question 1 in Section B of this TL
2.4.3 Sections in SILKE you may ignore
Note that the calculation of the value of limited interests is not part of the syllabus (SILKE –
par 26.9.2 to 26.9.4). The value of limited interests in property will be provided in questions
and assessments. You will be required to determine which value to use for the limited
interests taking the provisos of section 62 into account.
You must also be able to recognise and define the meaning of a fiduciary interest, usufruct
and bare dominium, as described in the first few paragraphs of par 26.9.2 in SILKE.
2.5 LAW AMENDMENTS
The taxation laws are amended annually. These amendments are firstly published in the form of draft Bills
and then as Bills. Only once the Bills have been passed through Parliament and once it is then assented
to by the President, it is published as Acts. It is normally expected that the Bills will be enacted early in the
following year.
The study material in this tutorial letter is based on amendments as proposed in the Bills. The publishing
of the Bills coincides with the Medium Term Budget Policy Statement (MTBPS) made by the Minister of
Finance. The last MTBPS was made on 28 October 2020 and the following Bills, relevant to your studies,
were published:
Rates and Monetary Amounts and Amendment of Revenue Laws Bill 26 of 2020;
Taxation Laws Amendment Bill 27 of 2020; and
Tax Administration Laws Amendment Bill 28 of 2020.
Use the following link1 to access the published Bills:
https://www.sars.gov.za/Legal/Preparation-of-Legislation/Pages/Bills.aspx
The important proposed amendments which are applicable to this LU are summarised below. In some
instances, we repeat amendments from previous years which were enacted for your reference.
1
'image: Flaticon.com'. The weblink icon has been designed using resources from Flaticon.com12 TAX4862/103/2021
Relevant amendments contained in the Taxation Laws Amendment Bill 27 of 2020, are
as follows:
Insertion in s 7C of the Income Tax Act:
Section 7C(1B)
Where a natural person or at the instance of a natural person, a company that is a
connected person in relation to that natural person in terms of paragraph (d)(iv) of the
definition of ‘connected person’, subscribes for a preference share in a company in which 20
per cent or more of the equity shares are held (whether directly or indirectly) or the voting
rights can be exercised by a trust that is a connected person in relation to that natural person
or to that company, whether alone or together with any person who is a beneficiary of that
trust—
(i) consideration received by or accrued to that company for the issue of that preference share
shall be deemed to be a loan for the purposes of subsection (3); and
(ii) any dividend or foreign dividend accrued in respect of that preference share shall be
deemed to be interest in respect of the loan contemplated in paragraph (i).
Section 7C(6):
“Preference share” means a preference share as defined in section 8EA(1).
Effective date: on or after 1 January 2021.
Where s 7C(1B) applies, and the consideration received by the company in exchange for the
preference shares is deemed to be a loan, any dividend or foreign dividend accrued in respect
of the preference shares will be deemed to be interest in respect of the loan. Therefore, the
dividend or foreign dividend on the preference shares is compared to interest at the official
rate of interest to determine any possible deemed donation (see example 26.13 in SILKE).
Amendment to the wording of section 8(4)(k) following subparagraph (iv):
Where a person donates an asset on which a deduction was previously allowed to that person,
the person is deemed to have disposed of that asset at the market value of the asset at the
date of the donation.
Effective date: 15 January 2020.
Amendment to the wording of section 18A(3A)(c):
Replacing the word “it” with the words “the immovable property” in the definition of “C” in
paragraph (c).
Amendment to the wording of section 64(1)(a)(i):
The wording now makes it clear that only taxable donations must be included in the R30 million
from 1 April 2018.13 TAX4862/103/2021
Relevant amendments contained in the Rates and Monetary Amounts and Amendment
of Revenue Laws Bill 1737 of 20198 and the Taxation Laws Amendment Bill 18 of 2019,
are as follows:
Amendment of paragraph 38(1) of the 8th Schedule to the Income Tax Act:
Paragraph 38 stipulates that the transfer of assets by means of a donation, or for a
consideration not in money, or to a connected person are deemed to be at market value.
However, paragraph 38 is subject to section 9HB. The wording of paragraph 38 has now been
amended to correctly refer to section 9HB.
Words were further added to paragraph 38 that now refers to a connected person
immediately prior to or immediately after that disposal.
Section 9HB deals with the roll-over provisions of assets between spouses and takes priority
over paragraph 38. Therefore, assets transferred (donated) between spouses will not deemed
to be at market value.
This amendment comes into operation on the date of promulgation of the Taxation Laws
Amendment Act of 2019.
Amendment of paragraph 38(1)(b) of the 8th Schedule to the Income Tax Act:
The base cost of an asset received as a donation is also deemed to be the market value. This
market value must be treated as “an amount of expenditure actually incurred” for the purposes
of par 20(1)(a). Previously the paragraph stipulated “incurred and paid”. The words “and paid”
have now been deleted.
This amendment comes into operation on the date of promulgation of the Taxation Laws
Amendment Act of 2019.14 TAX4862/103/2021
2.6 ADDITIONAL NOTES
2.6.1 Framework for the calculation of donations tax
References to
the Income Tax
Act
DID A RESIDENT DISPOSE OF THE PROPERTY? Sections 1 and
NO 54
YES
WAS THIS PROPERTY DISPOSED OF UNDER ANY Sections 54, 55,
NO DONATION OR DEEMED DONATION? 58 and 7C
YES
YES IS THE DONATION EXEMPT FROM DONATIONS Section 56(1)
TAX? and 56(2)(c)
NO
CALCULATE THE VALUE OF THE DONATION. Section 62
CALCULATE THE TAXABLE DONATION
= VALUE OF DONATION LESS BALANCE OF Section 56(2)(a),
EXEMPTION (not a natural person: R10 000 per (b) and section
annum for casual gifts; 60(2)
natural person: R100 000 per annum)
(exemption applied in order that donations take
effect)
NO
DONATIONS CALCULATE DONATIONS TAX
TAX TAXABLE DONATION x 20% or 25% (where the Section 64
PAYABLE aggregate of donations exceed R30 million)
Notes to the framework
1. Donations tax is payable on the fair market value of any property disposed of gratuitously or for less
than the fair market value by a South African resident.
2. Donations tax must be calculated separately on each donation as and when the donation takes place
and not at the end of the year of assessment (except for deemed donations in terms of section 7C).15 TAX4862/103/2021
The R100 000 exemption, applicable to natural persons, and the R10 000, applicable to persons who
are not natural persons, must therefore be applied in the order that the donations take place.
3. The R100 000 exemption, applicable to natural persons, applies to all property donated and is not
apportioned where the period of assessment is less than a full year. The R10 000 exemption, on the
other hand, applicable to a donor that is not a natural person, only applies to casual gifts and it must
be apportioned where the period in question exceeds or is less than 12 months.
Donations tax does not apply to non-residents, even if they donate South African assets.
Donations tax is payable by the end of the month following the month during which the
donation takes effect (i.e. if a donation is made in January, the donations tax is payable by
the end of February.
Do not confuse the section 18A deduction (deductible donations to certain organisations) from
taxable income with the donations tax provisions. Even if no donations tax is payable on a
specific donation, it does not mean that the specific donation may be deducted for normal tax
purposes. Consider the provisions of section 18A to determine the deductibility for normal
income tax purposes.
2.6.2 Impact of donations on other taxes
A donation may affect many more items than merely donations tax. You may be required to consider the
capital gains tax or normal tax (including income tax and capital gains tax) implications of a donation.
Donations tax may therefore be combined/integrated with topics that will only be addressed in future
tutorial letters, for example:
Meaning of “resident” – TL 104
Capital gains tax – TL 104
Trusts (section 7) – TL 107
Income tax (section 18A – deduction of donations to certain organisations) – TL 105, TL106 and TL 107.
With the amendment to the donations tax rate from 20% to 25% in the instance where a
donation is made and the aggregate value exceeds R30 million, the question in a test or the
exam will contain the necessary information to determine whether the higher donations tax rate
of 25% applies. If no such information is given, the assumption is that the aggregate value does
not exceed R30 million and the 20% donations tax rate is applicable.
In the questions contained in this tutorial letter the assumption is that the aggregate value of
donations made, does not exceed R30 million. However, please take note that either of the
rates can be tested in a test or the exam.16 TAX4862/103/2021
2.7 OUTCOMES OF THE BEANCOUNTER SCENARIO
Read the Beancounter scenario again and make a rough summary of what your solution
would be now that you have studied donations tax. You should be able to answer Barry
Beancounter’s query on donations tax. Share your solution on the myUnisa discussion
forum, then refer to the outcomes (solution) that will be made available on the Friday of your
study week on myUnisa.
2.8 SUMMARY OF LU 2
This learning unit introduced you to the content in the Income Tax Act that is relevant to donations tax with
the relevant law amendments. The table of reference under 2.4.2 was provided to guide you through the
work. A framework for determining and calculating donations tax was provided to assist you in analysing
donations tax scenarios. Remember to take a look at the additional resources available for this learning
unit on myUnisa and YouTube. Ensure that you do not study donations tax in isolation and that you
consider the impact of every donation on other taxes. Now you are ready to apply your donations tax
knowledge by doing the questions in Sections B and C of this tutorial letter.
2.9 LIST OF REFERENCES OF LU 2
Parsons, et al. 2020. Advanced Questions on SA Tax 6th edition (2021). Cape Town, Juta.
SAICA. 2020. SAICA Student Handbook 2019/2020 Volume 3, Durban, LexisNexis.
Stiglingh, et al. 2020. ‘Chapter 17: Capital gains tax (CGT)’, Silke: South African Income Tax 2021,
Durban, LexisNexis.
Stiglingh, et al. 2020. ‘Chapter 26: Donations tax’, Silke: South African Income Tax 2021, Durban,
LexisNexis.
___________________________
END OF LEARNING UNIT 217 TAX4862/103/2021
WORK PLAN FOR DAYS 2 - 5 (25 – 28 FEBRUARY 2021)
Time allocation for learning unit 3 – VAT – 21 hours
3 VALUE-ADDED TAX (VAT)
3.1 BACKGROUND
After the completion of the first year of your postgraduate studies, you should have a basic knowledge of
VAT. In this learning unit, you should concentrate on those areas that were not covered in your previous
studies and master complex issues. While studying, ensure that you can also apply the theory to a
practical situation. When you plan your study time, bear in mind the sections that are examinable in terms
of the syllabus and those sections that are excluded from the syllabus (reflected in the Table of Reference
(below) in this learning unit).
3.1.1 UNGC Principle 10
The UNGC principles were introduced in TL102. Compliance with the laws and regulations is the basis on
which the taxation legislation is founded.
UNGC principle 10 states that businesses should work against corruption in all its forms, including extortion
and bribery. The definition of corruption includes dishonest or fraudulent conduct. Tax evasion would fall
within the ambit of corruption. UNGC principle 10 therefore encourages entities to find a balance between
the social obligation to pay taxes and tax planning, in order to minimise the ‘cost’ of these taxes for an
entity within the ambit of the law. It is important to take note of the UNGC principle 10 not only when
studying, but more importantly when applying the Value-Added Tax legislation in practice.18 TAX4862/103/2021
3.2 OUTCOMES OF THIS LEARNING UNIT
After studying LU 3, you should be able to meet the following outcomes:
understand and be able to explain how the levying of VAT and the VAT
system works;
identify whether a person needs to register as a vendor;
list the documentary requirements for a VAT transaction;
identify when and at what rate VAT is levied, including whether a transaction
will be zero-rated or exempt;
identify and be able to apply the rules relating to deemed supplies;
identify transactions where input tax will be denied and
explain and be able to determine and apply the timing rules and value for a
supply.
Before you start studying the detailed provisions of the VAT Act, read the following scenario
relating to the Beancounter family. The scenario provided requires that you first carefully read
the information provided. Then, as you study the different VAT provisions, identify areas of
concern that should be brought to the attention of the Beancounter family.
3.3 BEANCOUNTER SCENARIO
Bizzie Beancounter has decided to start her own business venture as a sole proprietor. She has located
the perfect premises that is currently available for letting. She will start a dry-cleaning business in her own
name (recognised as a process of manufacture by the Commissioner) on 1 May 2020 (with a February
year-end). She will employ four permanent staff members (non-connected persons) and she herself will
take care of the day-to-day management of the business. Bizzie will import two dry-cleaning machines
from Europe, which will have arrived by 1 May 2020.
Bizzie has signed contracts with a few local restaurants to render dry-cleaning services to them with effect
from May 2020. Her monthly turnover in terms of these agreements will be R85 000 for the first six months,
increasing by 10% for every consecutive six-month-period.
However, Bizzie is uncertain about what (if any) VAT implications might arise from her business venture
and she has asked you to identify all the VAT areas which may affect her business.
Six months have passed since your first meeting with Bizzie when she phones you to set a date for a
second meeting. The dry-cleaning business is operating very successfully and Bizzie feels that it is time
for one or two changes:
The rented premises has become too small for Bizzie’s business venture and she wants to buy a house
in Justice Mahomed Street, Pretoria, from where she will operate the business. She will buy the house
from Ancient Eve, a 72-year-old woman who can no longer manage the old residence on her own
(Ancient Eve is not a VAT vendor). The house has a separate, one-bedroom flat, which Ancient Eve
wants to rent from Bizzie after the sale. The flat occupies 10% of the floor space of the residence.19 TAX4862/103/2021 Bizzie wants to incorporate a collect-and-deliver dry-cleaning service into the business and she will need to buy a delivery truck for this purpose. Peter a current employee will do all the driving for business purposes. He will also be able to use the vehicle for private purposes during evenings and over weekends. All expenses relating to the delivery truck will be paid by the business.
20 TAX4862/103/2021
3.4 CONTENT FOR LEARNING UNIT 3
3.4.1 Study approach
In this learning unit, we again provide you with a Table of Reference (below); however, we recommend
that you study VAT in the sequence as set out in SILKE. We therefore provide you with this table, which
divides the content of the SILKE chapter into the time available, together with references to additional
notes in this tutorial letter. You should use this table to guide you through the content of this learning unit.
Also, refer to the prescribed cases (indicated in the table) to be studied (refer to the relevant summaries
in TL102).
Par in Additional
Topic
SILKE notes in the TL
Day 2: Thursday 25 February 2021 (3 hours)
31.1 Overview of VAT 3.6.1
31.2 Calculation of VAT
31.3 The accounting basis (s 15)
31.4 Tax periods (s 27)
31.5 Output tax (supply of goods and services) (s 7(1)) 3.6.2& 3.6.3
31.6 Vendor (ss 23, 50, 50A, 51(2) and 22 of the TAA)
31.7 Output tax (in the course or furtherance of an enterprise) (s 7(1)(a))
31.8 VAT levied – importation of goods (ss 7(1)(b) and 13) 3.6.9
31.9 VAT levied – imported services
CSARS v De Beers Consolidated Mines Ltd (74 SATC 330) TL 102
31.10 Output tax (zero rated supplies)
Interpretation note: No. 103 – The Value-added tax treatment of
supplies of international and ancillary transport services
Stellenbosch Farmers’ Winery Ltd v CSARS [2012] (77 SATC 235) TL 102
Master Currency (Pty) Ltd v C: SARS [2013] 3 All SA 135 (SCA) TL 102
Interpretation note: No. 85 – The Master Currency case and the zero-
rating of supplies made to non-residents
Interpretation note: No. 57 – Sale of an enterprise or part thereof as a
going concern
31.11 The taxable supply of commercial accommodation & exempt supplies 3.6.4
Day 3: Friday 26 February 2021 (3 hours)
31.12 Output tax (deemed supplies) (ss 8 and 18(3)) 3.6.5
CSARS v British Airways PLC [2005] JOL 14066 (SCA) TL 102
31.13 Output tax (non-supplies) (ss 8(3), (4), (14), (25), 9(2)(b) and (c) and
10(11))
31.14 Output tax (no apportionment) (s 8(16))
31.15 Time of supply (s 9) 3.6.6
31.16 Value of supply (s 10(2)) 3.6.6
Interpretation note: No. 70 - Supplies made for no consideration
Day 4 and 5: Weekend 27 – 28 February 2021 (15 hours)
31.17 Basics of input tax (ss 16 and 17) 3.6.7
31.18 Tax invoices (ss 16(2) and 20)
31.19 Debit and credit notes (s 21)
31.20 The determination of input tax (s 17)
CSARS v De Beers Consolidated Mines Ltd [2012] (74 SATC 330) TL 10221 TAX4862/103/2021
Par in Additional
Topic
SILKE notes in the TL
31.21 Input tax (denial of input tax) (s 17(2)) 3.6.8
Interpretation note: No. 82 – Input tax on motor cars
31.22 Input tax (second-hand goods) (ss 1, 18(8) and 20(8))
31.23 Special rules – instalment credit agreements
31.24 Special rules – fixed property 3.6.10
31.25 – Adjustments – (ss 9(6), 10(7), 16(3)(h), 18(1), 18B, 18(4), 9(5), 18(2), 3.6.11
31.31 18(5), 18(6), 10(9), 8(14)(b), 8(14A), 9(10), 10(24), 18(9), 18A, 8(29),
9(12), 10(28), 18C, 16(2)(f) and 22)
31.32.1 Pre-incorporation expenses (s 19)
31.32.2 Agents (ss 8(20), 16(2) and 54)
31.33 Foreign electronic services (s 1 definition of enterprise, ss 23(1) and
54(2B))
31.34 The influence of VAT on income tax calculations
Work through examples 31.60 & 31.61 in SILKE.22 TAX4862/103/2021
3.4.2 Table of Reference
The Table of Reference contains the references to all the sections in the VAT Act and TAA which must be
studied in this learning unit as well as an indication of whether a specific section is examinable or not.
Reference
Reference to
to the Topics Examinable
SILKE
VAT Act
Sections of the VAT Act
s1 All definitions, except for the following: Various Yes
(It will be stated if a service is an “electronic service” or a
person is an “intermediary”.)
“association not for gain”, “Controller”, “customs authority”,
“customs controlled area”, “customs controlled area
enterprise”, “designated entity”, par (b)(i) – (v) of the
definition of “enterprise”, proviso (vi), (viii), (x), (xi) & (xii) to
the definition of “enterprise”, paragraph (d) of the definition
No
of “exported”, “foreign donor funded project”, “grant”,
“inbound insurance policy”, “international journey”,
“licenced customs and excise storage warehouse”,
“outbound insurance policy”, “public authority”, “SEZ”, “SEZ
operator”, “share block company”, “Share Blocks Control
Act”, “Special Economic Zones Act”, “storage warehouse”,
“welfare organisation”
s2 Financial services, only:
Debt security s 2(1)(c), issue, allotment or transfer of
ownership of an equity security (d), provision of credit (f),
31.11.1 Yes
provision of long-term insurance (i) and the issue,
acquisition, collection, buying or selling or transfer of
ownership of any cryptocurrency (o).
Rest of the section No
s3 Determination of "open market value" Yes
s4 Administration of VAT Act No
s5 Exercise of powers and performance of duties No
s6 Secrecy No
s7 Imposition of VAT 31.5, 31.7, 31.8
Yes
& 31.9
Sub-section 7(3) No
s8 Certain supplies of goods or services deemed to be made 31.12, 31.13 &
Yes
or not made 31.14
Sub-sections (2A) – (2G), (5), (5A), (5B), (6), (13), (13A),
No
14(b), (14A), (17) – (20), (22) – (24), (26) & (28)
s 8A Sharia-compliant financing arrangements No
s9 Time of supply 31.15 Yes
Sub-sections (2)(d), (3)(e), (3)(f), (9), (10) & (11) No
s 10 Value of supply of goods or services 31.16 Yes
Sub-sections (4A), (8), (14), (17), (17A), (21A), (22B), (24),
No
(25) & (27)
s 11 Zero-rating 31.10 Yes
s 11(1) Supply of exported goods 31.10.1 Yes
Sub-sections (1)(a)(ii), (b) - (d), (f), (g), (hA), (m), (mA), (n),
No
(p), (r) - (v)
s 11(2) Supply of exported services 31.10.2 Yes23 TAX4862/103/2021
Reference
Reference to
to the Topics Examinable
SILKE
VAT Act
Sub-sections (2)(g), (h), (j), (m), (n), (q), (s), (t), (u), (v), (x),
No
(y)
s 11(3) Principle 31.10.2 Yes
s 12 Exempt supplies 31.11 Yes
Sub-sections (b), (d), (e),(f), (k), (l) & (m) No
s 13 Collection of tax on importation of goods, determination of
value thereof and exemptions from tax 31.8 Yes
s 13(2B) – value will be provided
Sub-sections (5) & (6) No
s 14 Collection of VAT on imported services, determination of
31.9 Yes
value thereof and exemptions from tax
Sub-section (4) No
s 15 Accounting basis 31.3 Yes
Sub-sections (2)(a), (2A), (3) – (9) No
s 16 Calculation of tax payable 31.2 & 31.17 Yes
(excluding broad area exclusions, e.g. prizes and gambling) No
s 17 Permissible deductions in respect of input tax 31.20 & 31.21 Yes
Sub-section (2)(ix) No
s 18 Change in use adjustments 31.12, 31.25 –
Yes
31.28
Excluding turnover tax provisions & s 18(4)(a), (4)(b), (9), &
No
18(10)
s 18A Adjustments in consequence of acquisition of going concern
wholly or partly for purposes other than making taxable 31.29 Yes
supplies
s 18B Temporary letting of residential fixed property No
s 18C Adjustments for leasehold improvements 31.30 Yes
s 19 Goods or services acquired before incorporation 31.32.1 Yes
s 20 Tax invoices 31.18 Yes
s 21 Credit and debit notes 31.19 Yes
s 22 Irrecoverable debts 31.31 Yes
s 23 Registration of persons making supplies in the course of
31.6 & 31.33 Yes
enterprises
Sub-section (3)(b)(ii)(AA), (3A) & (5) No
s 24 Cancellation of registration 31.6 Yes
s 25 Vendor to notify change of status No
s 26 Liabilities not affected by person ceasing to be vendor 31.6.1 No
s 27 Tax period (category will be given) 31.4 Yes
Sub-section (2) – (5) No
s 28 Returns and payments of tax No
s 29 Special returns No
s 31 Assessments No
s 32 Objections to certain decisions or assessments Yes
s 38 Manner in which tax shall be paid No
s 39 Penalty for failure to pay tax when due
No
s 40C Liability of bargaining councils or political parties for tax and
No
limitations of refunds
s 40D Liability for tax and limitations of refunds in respect of
No
National Housing Programmes
s 41 Liability for tax in respect of certain past supplies or
No
importations24 TAX4862/103/2021
Reference
Reference to
to the Topics Examinable
SILKE
VAT Act
s 41B VAT class rulings and VAT rulings No
s 44 Refunds No
s 45 Interest on delayed refunds No
s 46 Persons acting in a representative capacity No
s 50 Separate enterprises, branches and divisions 31.6 Yes
Proviso to section 50(1) No
s 50A Separate persons carrying on same enterprise under
31.6 Yes
certain circumstances deemed to be single person
s 51 Bodies of persons, corporate or unincorporated (other than
No
companies)
s 52 Pooling arrangements No
s 53 Death of vendor Yes
Insolvency of vendor No
s 54 Agents (excluding auctioneers)
(It will be clear from the information that there is an 31.32.2 Yes
agent/principal relationship)
Intermediaries (s 54(2B)) 31.33 Yes
Sub-section (2A)(b) No
s 55 Records No
s 58 Offences No
s 61 Recovery of tax from recipient No
s 64 Prices deemed to include tax Yes
s 65 Prices advertised or quoted to include tax Yes
s 66 Rounding-off of the tax No
s 67 Contract price or consideration may be varied according to No
rate of VAT
s 67A Application of increased or reduced tax rate No
s 67B Registration of motor vehicles prohibited in certain No
circumstances
s 68 Tax relief allowable to certain diplomats and diplomatic and No
consular missions
s 72 Arrangements and directions to overcome difficulties,
anomalies or incongruities No
s 73 Schemes for obtaining undue tax benefits No
s 74 Schedules and regulations No
s 75 Tax agreements No
s 78 Transitional matters No
s 78A Transitional matters: Turnover tax No
s 85 Repeal of laws No
s 86 Act binding on State, and effect of certain exemptions from No
taxes
s 86A Provisions relating to special economic zones No
s 87 Short title No
Schedules to the VAT Act
1 Exemption: Certain Goods Imported in the Republic No
2 Part A No
2 Part B: Zero rate: Supply of goods consisting of certain
31.10.4 Yes
foodstuffs
2 Part C: Section 11(1)(w) of this Act 31.10.4 Yes25 TAX4862/103/2021
Interpretation notes Silke par
Interpretation Notes will no longer be included in the SAICA Student Handbook, but to the extent that
an Interpretation Note creates a practice generally prevailing (refer to section 5 of the Tax Administration
Act), the relevant extract will be provided in the test or exam.
Interpretation Notes are available at:
https://www.sars.gov.za/Legal/Interpretation-Rulings/Interpretation-
Notes/Pages/Numbers_1-20.aspx
Binding General Rulings (BGR) are available at:
https://www.sars.gov.za/Legal/Interpretation-Rulings/Published-Binding-Rulings/Binding-
General-Rulings/Pages/default.aspx
Interpretation note: No. 30 (Issue 3). Date: 5 May 2014 – The supply of moveable goods
as contemplated in section 11(1)(a)(i) read with paragraph (a) of the definition of
31.10.1.1
“exported” and the corresponding documentary proof (Section 1(1), par (a) of the
definition of exported”, sections 11(a)(i) and 11(3))
Interpretation note: No. 31. (Issue 4) Date: 9 March 2016 – Documentary proof required 31.10.2 &
for the zero-rating of goods and services (Section 11(3) read with section 11(1) and (2)) 31.10.4
Interpretation note: No. 42. (Issue 2) Date: 12 December 2016 – The supply of goods and 31.10.2.3 &
services by the travel and tourism industry (Section 7(1)(a), 11(1)(a) and 11(2)(l)) 31.21.3
Interpretation Note No. 52 (Issue 3) Date: 10 March 2014 – Approval to end a tax period
31.4
on a day other than the last day of a month
Interpretation note: No. 56. (Issue 2) Date 31 March 2014 – Recipient created tax
31.18
invoices; credit and debit notes (Sections 20(2) and 21(4)). See BGR 15 (Issue 2)
Interpretation note: No. 57. Date: 31 March 2010 – Sale of an enterprise or part thereof 31.10.3.1 &
as a going concern (sections 8(7), 8(16), 11(1)(e) & 18A) 31.10.3.2
Interpretation note: No. 70. Date: 14 March 2013 – Supplies made for no consideration
(sections 1(1) definition of ‘enterprise’, ‘taxable supply’ ‘input tax’ and ‘consideration’, 31.16.7
(sections 10(4), 10(23))
Interpretation note: No. 82. Date: 26 March 2015 – Input tax on motor cars (sections 1(1),
31.21.3
17(2)(c) & 18)
Interpretation note: No. 83. (Issue 2) Date 9 April 2015 – Application of sections 20(7)
31.18
and 21(5) (Sections 20(4), (5), (7), 21(1) and (5)). See BGR 27
Interpretation note: No. 85. Date: 27 March 2015 – The Master Currency case and the
31.10.2.3
zero-rating of supplies made to non-residents (section 11(2)(l))
Interpretation note: No. 92. Date: 24 October 2016 – Documentary proof prescribed by 31.17 &
the commissioner (Sections 16(2)(f) and 16(3)(c) to (n)) 31.18
Interpretation note: No. 103. Date: 14 September 2018 – The Value-added tax treatment
of supplies of international and ancillary transport services (Section 11(2)(a), (b), (c), (d) 31.10.2.1
& (e))
3.4.3 Sections in SILKE you may ignore
When working through chapter 31 in SILKE, you may IGNORE all paragraphs of the text with
shaded headings.
The following broad area exclusions from the SAICA syllabus relates to VAT:
Special Economic Zones;
Custom Controlled Areas;
Municipalities, municipal entities, welfare organisations and organisations not for gain; and
Donor funded projects.26 TAX4862/103/2021
3.5 LAW AMENDMENTS
The important proposed amendments which are applicable to this LU are summarised below. In some
instances, we repeat amendments from previous years which were enacted for your convenience.
Relevant proposed amendments to the VAT Act contained in the Rates and Monetary
Amounts and Amendment of Revenue Laws Bill 26 of 2020, the Taxation Laws
Amendment Bill 27 of 2020 and the Tax Administration Laws Amendment Bill 28 of 2020
respectively, are as follows:
Amendment to proviso (ii) of section 22(3):
The amendment makes it clear that where goods or services acquired on credit and where the
creditor is not paid within 12 months of the tax period in which the deduction (input tax claimed)
was made, the vendor must account for output tax at the tax fraction at the rate applicable at
the time of such deduction. This makes provision for changes in the VAT rate, i.e., when the
VAT rate increased from 14% to 15% on 1 April 2018.
Effective date: on or after 1 April 2021
Amendments to the VAT Act contained in the Rates and Monetary Amounts and
Amendment of Revenue Laws Bill 17 of 2019, the Taxation Laws Amendment Bill 18 of
2019 and the Tax Administration Laws Amendment Bill 19 of 2019 respectively, are as
follows:
Amendment of section 8(25) of the VAT Act:
The supplying and recipient vendor are deemed to be one and the same person in respect of
certain company reorganisation transactions. Sub-paragraph (iii) was added to section 8(25).
This has the effect that a fixed property asset-for-share and intragroup transaction will now
also be regarded as a non-event for VAT:
Where a supplier (vendor A) disposes of fixed property to a recipient (vendor B) and the parties
agree in writing that the supplier (vendor A) will lease the fixed property from the recipient
(vendor B) immediately after the supply.
This amendment comes into operation on 1 April 2020
Amendment of section 11(1)(w) and Schedule 2 of the VAT Act:
Paragraph (w) has been added to section 11(1). This paragraph stipulates that sanitary towels
(pads) as set out in Part C of Schedule 2 are now exempt supplies.
Part C was added to Schedule 2 and lists the type of sanitary towels that are zero rated.
This amendment is deemed to have come into operation on 1 April 201927 TAX4862/103/2021
Amendments to the VAT Act contained in the Rates and Monetary Amounts and
Amendment of Revenue Laws Bill 17 of 2019, the Taxation Laws Amendment Bill 18 of
2019 and the Tax Administration Laws Amendment Bill 19 of 2019 respectively, are as
follows:
Amendment of section 24(1) of the VAT Act:
The section has been amended to now also include foreign electronic services providers.
Therefore, a foreign electronic services provider shall cease to be liable to register where the
total value of the vendor’s taxable supplies in the period 12 months commencing at the
beginning of any tax period will not be more than R1 million.
This amendment is deemed to have come into operation on 1 April 2019.
3.6 ADDITIONAL NOTES
3.6.1 Mind map representing an overview of VAT
In order to provide you with an overview of VAT and as a useful study tool, we include a mind
map of the output and input tax provisions in the VAT Act on the following page.28 TAX4862/103/0/2021
Mind map with overview of VAT
NO Supply goods
Final consumer Person carrying on an enterprise YES
and services
Exempt
No output supplies
tax levied (sections 12 Taxable supplies
and 2) (sections 1 and 7)
Standard rated supplies (15%)
OUTPUT TAX (section 7(1)(a))
(section 7(1)(a))
Zero-rated supplies (0%)
(section 11)
Deemed supplies
Adjustments (sections 18(1), (sections 8 and 18(3))
18(2), 18A, 18B, 18C and 22(2)
– (3A))
Time and value of supplies
Mixed supplies (section 17(1)) (sections 9 and 10)
Apportionment Adjustments (sections 18(4), 18(5),
18(9), 16(3)(h), 22(1), 22(1A), 22(4),
22(6) and 22(7))
LESS
Input tax deduction denied
(section 17(2))
INPUT TAX Notional input tax – second-hand goods (also
(section 7(1) fixed property)
& section 1) (section 1, definition of “input tax”, sub-par (b))
Imported goods and services
(sections 7(1)(b), 13 & 14))
AMOUNT DUE TO OR
BY SARS29 TAX4862/103/2021
3.6.2 Mind map of the supply of goods and services – OUTPUT TAX
Supply of goods and services by a
vendor
No output tax Exempt supplies Taxable supplies
charged (sections 12 and 2) (sections 1 and 7)
Standard rated supplies (15%)
(section 7(1)(a))
Zero-rated supplies (0%)
OUTPUT TAX (section 11)
(section 7(1)(a))
Deemed supplies
(sections 8 and 18(3))
Adjustments (sections 18(1),
18(2), 18A, 18B, 18C and 22(2)– Time and value of supplies
(3A)) (sections 9 and 10)
3.6.3 Services - SILKE par 31.5.3
The definition of services is very broad and the supply of services typically include (without being limited
to) the following:
royalties – granting the right to use intellectual property, that is, patents, trademarks and copyrights
sale of intellectual property
assignment, waiver or abandonment of a right to someone else, including the right of legal action
acceptance of a restraint, including agreeing not to act or to act in a particular way
acceptance of damages or compensation, including the cancellation of agreements
provision of professional services, including construction, legal, accounting and other similar services
provision of facilities by clubs, churches, charities and other non-profit organisations
Please note that this does not mean that all of the above services are taxable supplies; merely that they
will constitute services for the purposes of the VAT Act.
The exclusion of “money” from the definitions of “goods” and “services” means that no VAT implications
will arise in respect of its supply. This is important because it means that when goods are purchased from
a vendor, the initial supply of the item will attract VAT, whereas the subsequent payment will not attract
VAT.30 TAX4862/103/2021
3.6.4 Exempt supplies: Other (including transport of fare-paying passengers and their
personal effects by road or rail) - SILKE par 31.11.4
Study section 12(g). Note that where transport services were taxed at 0% (in terms of section 11(2)(a)),
this will take preference over the exemption (if it is transport by road or rail; transport by aircraft or boat
is in any case a taxable supply). The information below is summarised from VAT Practice Note 7/1992.
Practice Notes are available at:
https://www.sars.gov.za/Legal/Interpretation-Rulings/Pages/Find-a-Practice-Note.aspx
For the exemption to apply, the following criteria must be met:
Passengers (travelling by road or rail) must pay a fare.
The supplier of the transport service must operate the vehicle himself (not a courier).
These two requirements will be discussed in more detail.
Fare-paying passengers
Where the operator of the vehicle (in which passengers are transported) charges a consideration for the
service, the passengers will be regarded as fare-paying. The passengers themselves, or a third party, may
pay a specified fare either on boarding the vehicle or on purchasing a ticket prior to travel.
The exemption does not apply where passengers are not charged a fare. If, for example, a mine were to
provide transport by road for its miners from their lodgings to the mine, the mine would be entitled to claim
the input tax paid in connection with the supply. This is because it will not constitute an exempt supply, as
the miners do not pay a fee.
Operation of a transport business
In order to qualify for the exemption, the supplier of the transport service must be the operator of the
vehicle in which the passengers are transported. The supplier need not necessarily be the owner of the
vehicle or even the employer of the driver but must be commercially responsible for the transporting of the
passengers.
Where the supplier of the vehicle does not operate it himself, but rents or hires it to a third party, who uses
it for the transport of passengers, the exemption does not apply. The reason for this is that the supply
constitutes the hire of the vehicle and not that of a transport service and is therefore standard rated. Should
the supplier also provide the services of a driver, however, the supply will constitute an exempt supply in
most cases, and not a standard-rated supply. Each situation must be judged on its own facts and the use
of the words “hire” or “charter” in an agreement is not conclusive as to the nature of the transaction. The
decisive factor in determining whether an exempt transport service or a taxable rental transaction is
supplied will usually be to whom the driver is ultimately accountable.
If the driver were accountable to the owner of the vehicle, an exempt transport service would be supplied
in the absence of factors to the contrary. By contrast, if the driver were accountable to the recipient, the
supply would be taxable in most instances. In practice, SARS interprets this provision in a broad manner.You can also read
