Bookmark : https://www.exceed.co.za/news/deductions-for-new-vat-vendors/?id=12&entryId=221
Skip to : [Content] [Navigation]
  • Big enough to count, small enough to care

    Big enough to count, small enough to care
  • Integrity forms the backbone of our business

    Integrity forms the backbone of our business

News

Back to News

Deductions for new VAT vendors

08 Oct 2014

Charlotte HanekomThe VAT Act allows newly registered vendors to deduct input tax on those goods or services that they acquired prior to their registration as vendors, provided that certain conditions are met.

When a person becomes a vendor, previously acquired goods or services are taken into account in terms of Section 18(4) of the VAT Act, and costs incurred before the effective date can be deducted. The requirements of applying Section 18(4) are as follows:

  • Goods or services were supplied to, or imported by, a person;
  • Tax has been charged in respect thereof (goods or services acquired from non-vendors would therefore be excluded);
  • No deduction has been made in relation to those goods or services;
  • The goods or services are applied by the person wholly or partly for consumption, use or supply in the course of making taxable supplies.

For goods or services to be applied in the course of making taxable supplies, the goods or services must be ‘on hand’ at the effective date of registration. Goods or services that were fully consumed prior to the effective date, will not qualify for the input tax deduction.

In terms of the definition in Section 1, tax on a supply will only be ‘input tax’ if it is tax on the supply of goods or services to a vendor. Tax levied on supplies made to a person prior to that person being a vendor, is therefore not input tax. However, Section 16(3)(f) allows for a deduction within 5 years from the effective date, provided the requirements of Section 18(4) are met.

The deduction is calculated by applying the formula prescribed in Section 18(4), i.e. the tax fraction (14/114), applied to the lesser of either the cost of acquisition or the open market value of the goods at the time of vendor registration.

According to Section 16(2), a deduction can only be made if the vendor has documentary proof – such as an invoice used to determine the adjusted cost or proof of the open market value – substantiating his/her entitlement to the deduction.

The VAT act therefore allows newly registered vendors to deduct input tax on those goods or services that they acquired prior to their registration as vendors, provided that the said goods or services are applied in any tax period for consumption, use or supply in the course of making taxable supplies.

For more information please contact Charlotte Swanepoel of Tenk Loubser & Associates Somerset West on 021 852 0382

    View Archives


    Johannesburg

    Tel: +27 (0) 87 985 0935
    infojhb@exceed.co.za

    London, UK

    Tel: +44 (0) 1784 439 955
    www.exceeduk.co.uk

    Somerset West

    Tel: +27 (0) 21 852 0382/4
    swest@exceedsw.co.za

    Cape Town

    Tel: +27 (0) 21 915 6666
    tygervalley@exceed.co.za

    Paarl

    Tel: +27 (0) 21 872 7118
    paarl@exceed.co.za