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FAQ - 11 October 2017

11 October 2017   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Can a registered vat vendor charge vat on staff provided and fuel to another vat registered entity?

Q: Company A & B both have common directors & shareholders. They are both logistics companies. Company A is in Gauteng and company B in the Cape. Company B vehicles will refuel at Company A. Company A will raise an invoice to Company B at the end of the month and charge for the fuel used. They will also charge for the staff utilised. Should they raise vat on these transactions?

A: The VAT Act

1. Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services by a vendor to another person made in the course or furtherance of the VAT enterprise carried on by the vendor. The section imposes VAT at the standard rate (currently 14%).

2. Section 11 of the VAT Act varies the standard rate of VAT to nil percent in respect of certain categories of supplies.

3. Section 11(1)(h) of the VAT Act zero-rates goods consisting of fuel goods referred to in Fuel Item Levy numbers 195.10.03, 195.10.17, 195.20.01 and 195.20.03 in Part 5A of Schedule No.1 to the Customs and Excise Act (these items include diesel and petrol).

4.“Services” is defined in section 1(1) of the VAT Act as anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage. 

5. “Person” as defined in section 1(1) of the VAT Act includes any company.

Application of the principles

1. Companies A & B are separate persons for VAT purposes notwithstanding having common directors and shareholders. Supplies of goods or services made between the companies accordingly represent supplies for VAT purposes that must be accounted for in the respective VAT returns.

2. The supply of the fuel (whether diesel or petrol) is a zero-rated supply in terms of section 11(1)(h) of the VAT Act.

3. The supply of any other services will generally be subject to VAT at the standard rate (currently 14%).

4. The common shareholding and directors are likely to cause the companies to be connected persons as envisaged in the VAT Act. Special VAT rules apply to supplies made between connected persons. In the present circumstances where invoices are issued on a monthly basis, the special VAT rules will not impact on your business and may accordingly be ignored.

2. Can you claim a travel allowance for a vehicle registered in someone else’s name?

Q: The client uses a vehicle registered in the wife’s name and the client receives a travel allowance from the employer. Will he be able to claim this on his tax return?

A: Whilst not a tax related issue we understand that the owner of vehicle will not necessarily be the title holder (it is title holder of a new, pre-owned, built or re-built motor vehicle, who must register it).  So, for instance, if the vehicle is financed, the title holder will be the financing institution. 

Section 8(1) also doesn’t have the ownership requirement as does for instance section 11(e) of the Income Tax Act.  When the calculation is based on actual cost (accurate data) in respect of a vehicle that is being leased, ownership or title will not be in the name of the recipient. 

In any other case (i.e. not leased) the wear and tear of that vehicle must be determined over a period of seven years from the date of original acquisition by that recipient.  That would be the husband in your case. 

If the recipient doesn’t furnish an acceptable calculation based on accurate data and applies the rate per kilometre (determined by the Minister of Finance by notice in the Gazette for the category of vehicle used, the notice also requires that the motor vehicle (not being a motor vehicle leased) was acquired by that recipient under a bona fide agreement of sale or exchange.  It therefore requires that the vehicle must have been acquired by the recipient of the allowance before the deductions will be allowed.  Where the vehicle is leased, it refers to the cash value thereof. 

In any other case, the value will be the market value of that motor vehicle at the time when that recipient first obtained the vehicle or the right of use thereof, plus an amount equal to value added tax which would have been payable in respect of the purchase of the vehicle had it been purchased by the recipient at that time at a price equal to that market value.  The requirement is then that the husband must have obtained the right of use thereof. 

3. Are the km's travelling to the office business km's or not when your salary package is 100% commission based?

Q: I have a client that's salary package is 100% commission based. The client is however travelling every day to the office where he perform his duties. The client also travels to clients for meetings, sales and marketing. Will these kilometres be business?

A: You mention that it is ‘100% commission based’ and we accept that the individual is not in a receipt of an allowance.  The principle however, apart from the fact that the adjustment is now made under section 23(g) (or 23(a)) of the Income Tax Act. 

The current practice generally prevailing with regard to private travel is as follows:

“In this regard, section 8(1)(b)(i) provides that travelling between a recipient’s place of residence and place of employment or business is private travel. The location of a recipient’s place of employment or place of business is a factual enquiry. In relation to an employee’s place of employment, it is the place at which the employee must render services as agreed with the employer. The term “place of employment” applies when the recipient of the allowance or advance is an employee and the term “place of business” applies when the recipient is a holder of an office.

Travel between the place of employment or business and the place of residence is regarded as private travel even if the travel takes place after normal or during extended working hours.” 

Note, the words in section 8(1)(b)(i) were recently amended and now refers to “travelling between his or her place of residence and his or her place of employment or business or any other travelling done for his or her private or domestic purposes”. 

The issue is therefore whether the home office (or place of residence) is his place of employment.  This is a factual inquiry and the fact that the employment contract specifically deals with this is not, on its own, sufficient.  SARS provides as an example, the instance where “a computer programmer, who is allowed to work from home on a permanent basis (that is, the home office is the place of employment) travels to a client’s premises to discuss system requirements and functionality, the travel from the home office to the clients’ premises.”  A further example provided by SARS is where “an assistant who is employed to work as a shop assistant at a V&A Waterfront store in Cape Town for two days a week and the Canal Walk Store in Cape Town for three days a week … travels from home to a store, the travel between home and the Canal Walk Store, or the V&A Waterfront store as appropriate.”  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


 

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