TAXATION 388
Term 4
Chapters 31 & 17
Notes made in the 2020 academic year
Tax email address:
TABLE OF CONTENTS
Chapter 31 ................................................................................................................................................... 4
VALUE-ADDED TAX (VAT) .......................................................................................................................... 4
31.1 Overview .......................................................................................................................................... 4
31.2 Calculation of VAT .......................................................................................................................... 5
31.2.1 Basics of output tax ........................................................................................................................ 5
31.2.2 Basics of input tax ........................................................................................................................... 7
31.2.3 CaLculation of VAT payable or VAT refundable ........................................................................ 8
31.3 The accounting basis ...................................................................................................................... 9
31.4 Tax periods .................................................................................................................................... 10
31.5 Supply of goods or serviced......................................................................................................... 10
31.5.1 Supply ............................................................................................................................................. 11
31.5.2 Goods ............................................................................................................................................. 11
31.5.3 Services .......................................................................................................................................... 12
31.6 Vendor ........................................................................................................................................... 12
Compulsory registration .......................................................................................................................... 12
Voluntary registration ............................................................................................................................... 13
31.7 In the course or furtherance of an enterprise .............................................................................. 14
31.10 Zero-rated supplies ..................................................................................................................... 15
31.10.1 Zero-rated: Exported goods ..................................................................................................... 15
31.10.2 Zero-rated: Exported services .................................................................................................. 16
31.10.4 Other Goods ............................................................................................................................... 18
31.11 Output Tax: Exempt Supplies .................................................................................................... 19
31.11.1 Financial services ........................................................................................................................ 19
31.11.2 Residential accomodation ......................................................................................................... 21
31.11.3 Commercial accomodation ....................................................................................................... 22
1
, 31.11.4 Other ............................................................................................................................................ 25
31.15 Time of supply ............................................................................................................................. 27
31.16 Value of the supply ..................................................................................................................... 27
31.16.1 General rule ................................................................................................................................. 28
31.16.2 Connected persons .................................................................................................................... 28
Other special cases................................................................................................................................... 29
31.17 Basics of input tax ....................................................................................................................... 30
31.18 Tax Invoices ................................................................................................................................. 31
31.19 Debit notes, credit notes and errors on tax invoices ................................................................ 32
31.20 The determination of input tax .................................................................................................. 33
Apportionment for taxable supplies ...................................................................................................... 34
31.21 Denial of input tax ....................................................................................................................... 35
31.22 Deemed input tax on second-hand goods ............................................................................... 37
31.22.1 Zero-rating of movable second-hand goods exported ........................................................ 39
31.24 Special rules: Fixed property ...................................................................................................... 40
Transfer duties ........................................................................................................................................... 40
31.31 Adjustments: Irrecoverable debts .............................................................................................. 42
31.34 The influence of VAT on income tax calculations ..................................................................... 44
Chapter 17 ................................................................................................................................................. 46
CAPITAL GAINS TAX (CGT) ...................................................................................................................... 46
17.1 & 17.2 Overview and Scope ........................................................................................................... 46
The scope of CGT ..................................................................................................................................... 47
17.3 Persons liable for CGT .................................................................................................................. 49
17.3.3 Withholding tax applicable to the disposal of immovable property in South Africa by
non-residents ............................................................................................................................................. 51
17.4 The basic rules of CGT ................................................................................................................. 52
17.5 Determination of taxable capital gain and assessed capital losses ........................................... 52
17.6 The definition of ‘asset’ ................................................................................................................ 56
17.7 Disposals ........................................................................................................................................ 56
17.7.1 Disposal events ............................................................................................................................. 57
17.7.2 Non-disposals................................................................................................................................ 57
17.7.3 Deemed disposals ........................................................................................................................ 57
17.7.4 Time of disposal ............................................................................................................................ 59
17.7.5 Disposals by spouses married in community of property....................................................... 61
17.8 Base cost........................................................................................................................................ 62
17.8.1 Qualifying expenditure included in base cost .......................................................................... 63
17.8.2 Qualifying expenditure excluded from base cost .................................................................... 65
17.8.3 Reduction of base cost ................................................................................................................ 66
17.9 Proceeds ........................................................................................................................................ 67
17.9.1 Amounts excluded from the definition of ‘proceeds’ ............................................................. 68
17.9.3 Incurred and accrued amounts not quantified ......................................................................... 69
2
, 17.9.5 Disposals and donations not at arm’s length, or to a connected person ............................ 69
17.10 Exclusions, roll-overs, attributions and limitations .................................................................... 70
17.10.1 Primary residence exclusion ...................................................................................................... 71
17.10.2 Other exclusions ......................................................................................................................... 78
17.10.3 Roll-overs ..................................................................................................................................... 79
17.10.5 Limitation of losses ..................................................................................................................... 81
3
, CHAPTER 31
VALUE-ADDED TAX (VAT)
All references in this chapter are to the Value-Added Tax Act 89 of 1991 pg 383, unless otherwise
stated.
31.1 OVERVIEW
Almost every time a consumer purchases goods or services from a business in South Africa, he has to
pay a price that includes value-added tax (VAT). VAT is a tax on the consumption of goods and
services in South Africa, and is levied in terms of the Value-Added Tax Act 89 of 1991.
VAT is an indirect tax, which means that the tax is not assessed directly by SARS, but indirectly
through the taxation of consumption of goods and services. From 1 April 2018 VAT is levied at a rate
of 15% (previously 14%).
It is firstly important to note that a business that is registered for VAT and that levies VAT on the
selling price of its goods is referred to as a VAT vendor. For VAT purposes, the business activities
that are carried on by such VAT vendor are referred to as an enterprise.
If a VAT vendor, in the carrying on of an enterprise (business), sells goods to another person, the
VAT vendor selling the goods is also referred to as the supplier of the goods. The person buying the
goods is referred to as the recipient of the goods.
A VAT vendor carrying on an enterprise sells (supplies) goods to the buyer (the recipient) and levies
VAT on the selling price. The VAT that the supplier levies on the selling price is output tax. The VAT
vendor must pay the output tax, levied on the goods sold, to SARS.
The buyer (recipient) of the goods is the one who paid the VAT when he bought the goods. VAT is a
direct cost to the buyer (recipient) if that person is a final consumer. A final consumer cannot claim
the amount of VAT paid back from SARS. However, in certain instances, if the buyer (recipient) also
carries on a business and is registered as a VAT vendor, that recipient may claim the VAT it has paid
back from SARS. Any VAT paid by a recipient that the recipient may claim back from SARS, is
referred to as input tax.
VAT is essentially an inclusive tax, which means that any price charged by a vendor includes VAT.
This means that any price tag, advertisement, tender, quotation or other statement of a price must
include VAT, unless the price is clearly broken down into the different components, namely, value,
VAT and consideration (ss 64 and 65). The term ‘VAT inclusive’ is used where VAT is already included
in the price. ‘VAT exclusive’ is where VAT is not included in the price – the price, as stated, excludes
VAT.
In summary:
• Separate VAT Act
4
Term 4
Chapters 31 & 17
Notes made in the 2020 academic year
Tax email address:
TABLE OF CONTENTS
Chapter 31 ................................................................................................................................................... 4
VALUE-ADDED TAX (VAT) .......................................................................................................................... 4
31.1 Overview .......................................................................................................................................... 4
31.2 Calculation of VAT .......................................................................................................................... 5
31.2.1 Basics of output tax ........................................................................................................................ 5
31.2.2 Basics of input tax ........................................................................................................................... 7
31.2.3 CaLculation of VAT payable or VAT refundable ........................................................................ 8
31.3 The accounting basis ...................................................................................................................... 9
31.4 Tax periods .................................................................................................................................... 10
31.5 Supply of goods or serviced......................................................................................................... 10
31.5.1 Supply ............................................................................................................................................. 11
31.5.2 Goods ............................................................................................................................................. 11
31.5.3 Services .......................................................................................................................................... 12
31.6 Vendor ........................................................................................................................................... 12
Compulsory registration .......................................................................................................................... 12
Voluntary registration ............................................................................................................................... 13
31.7 In the course or furtherance of an enterprise .............................................................................. 14
31.10 Zero-rated supplies ..................................................................................................................... 15
31.10.1 Zero-rated: Exported goods ..................................................................................................... 15
31.10.2 Zero-rated: Exported services .................................................................................................. 16
31.10.4 Other Goods ............................................................................................................................... 18
31.11 Output Tax: Exempt Supplies .................................................................................................... 19
31.11.1 Financial services ........................................................................................................................ 19
31.11.2 Residential accomodation ......................................................................................................... 21
31.11.3 Commercial accomodation ....................................................................................................... 22
1
, 31.11.4 Other ............................................................................................................................................ 25
31.15 Time of supply ............................................................................................................................. 27
31.16 Value of the supply ..................................................................................................................... 27
31.16.1 General rule ................................................................................................................................. 28
31.16.2 Connected persons .................................................................................................................... 28
Other special cases................................................................................................................................... 29
31.17 Basics of input tax ....................................................................................................................... 30
31.18 Tax Invoices ................................................................................................................................. 31
31.19 Debit notes, credit notes and errors on tax invoices ................................................................ 32
31.20 The determination of input tax .................................................................................................. 33
Apportionment for taxable supplies ...................................................................................................... 34
31.21 Denial of input tax ....................................................................................................................... 35
31.22 Deemed input tax on second-hand goods ............................................................................... 37
31.22.1 Zero-rating of movable second-hand goods exported ........................................................ 39
31.24 Special rules: Fixed property ...................................................................................................... 40
Transfer duties ........................................................................................................................................... 40
31.31 Adjustments: Irrecoverable debts .............................................................................................. 42
31.34 The influence of VAT on income tax calculations ..................................................................... 44
Chapter 17 ................................................................................................................................................. 46
CAPITAL GAINS TAX (CGT) ...................................................................................................................... 46
17.1 & 17.2 Overview and Scope ........................................................................................................... 46
The scope of CGT ..................................................................................................................................... 47
17.3 Persons liable for CGT .................................................................................................................. 49
17.3.3 Withholding tax applicable to the disposal of immovable property in South Africa by
non-residents ............................................................................................................................................. 51
17.4 The basic rules of CGT ................................................................................................................. 52
17.5 Determination of taxable capital gain and assessed capital losses ........................................... 52
17.6 The definition of ‘asset’ ................................................................................................................ 56
17.7 Disposals ........................................................................................................................................ 56
17.7.1 Disposal events ............................................................................................................................. 57
17.7.2 Non-disposals................................................................................................................................ 57
17.7.3 Deemed disposals ........................................................................................................................ 57
17.7.4 Time of disposal ............................................................................................................................ 59
17.7.5 Disposals by spouses married in community of property....................................................... 61
17.8 Base cost........................................................................................................................................ 62
17.8.1 Qualifying expenditure included in base cost .......................................................................... 63
17.8.2 Qualifying expenditure excluded from base cost .................................................................... 65
17.8.3 Reduction of base cost ................................................................................................................ 66
17.9 Proceeds ........................................................................................................................................ 67
17.9.1 Amounts excluded from the definition of ‘proceeds’ ............................................................. 68
17.9.3 Incurred and accrued amounts not quantified ......................................................................... 69
2
, 17.9.5 Disposals and donations not at arm’s length, or to a connected person ............................ 69
17.10 Exclusions, roll-overs, attributions and limitations .................................................................... 70
17.10.1 Primary residence exclusion ...................................................................................................... 71
17.10.2 Other exclusions ......................................................................................................................... 78
17.10.3 Roll-overs ..................................................................................................................................... 79
17.10.5 Limitation of losses ..................................................................................................................... 81
3
, CHAPTER 31
VALUE-ADDED TAX (VAT)
All references in this chapter are to the Value-Added Tax Act 89 of 1991 pg 383, unless otherwise
stated.
31.1 OVERVIEW
Almost every time a consumer purchases goods or services from a business in South Africa, he has to
pay a price that includes value-added tax (VAT). VAT is a tax on the consumption of goods and
services in South Africa, and is levied in terms of the Value-Added Tax Act 89 of 1991.
VAT is an indirect tax, which means that the tax is not assessed directly by SARS, but indirectly
through the taxation of consumption of goods and services. From 1 April 2018 VAT is levied at a rate
of 15% (previously 14%).
It is firstly important to note that a business that is registered for VAT and that levies VAT on the
selling price of its goods is referred to as a VAT vendor. For VAT purposes, the business activities
that are carried on by such VAT vendor are referred to as an enterprise.
If a VAT vendor, in the carrying on of an enterprise (business), sells goods to another person, the
VAT vendor selling the goods is also referred to as the supplier of the goods. The person buying the
goods is referred to as the recipient of the goods.
A VAT vendor carrying on an enterprise sells (supplies) goods to the buyer (the recipient) and levies
VAT on the selling price. The VAT that the supplier levies on the selling price is output tax. The VAT
vendor must pay the output tax, levied on the goods sold, to SARS.
The buyer (recipient) of the goods is the one who paid the VAT when he bought the goods. VAT is a
direct cost to the buyer (recipient) if that person is a final consumer. A final consumer cannot claim
the amount of VAT paid back from SARS. However, in certain instances, if the buyer (recipient) also
carries on a business and is registered as a VAT vendor, that recipient may claim the VAT it has paid
back from SARS. Any VAT paid by a recipient that the recipient may claim back from SARS, is
referred to as input tax.
VAT is essentially an inclusive tax, which means that any price charged by a vendor includes VAT.
This means that any price tag, advertisement, tender, quotation or other statement of a price must
include VAT, unless the price is clearly broken down into the different components, namely, value,
VAT and consideration (ss 64 and 65). The term ‘VAT inclusive’ is used where VAT is already included
in the price. ‘VAT exclusive’ is where VAT is not included in the price – the price, as stated, excludes
VAT.
In summary:
• Separate VAT Act
4
