FAQ - May 2013
10 May 2013
Posted by: Author: Dieter van der Walt
Source: Dieter van der Walt
1. Medical deduction – s 18(1)(d)
Q: A single (divorced) mother has a 21-year-old
daughter with a disability (diagnosed with cerebral palsy at the age of two
years). Her medical practitioner rates her functional limitations to perform
activities of daily living as moderate to severe – "has great difficulty
walking, reduced mental capacity and requires assistance with most activities
of daily living”.
question is whether the mother (who is in full time employment at a hospital)
can deduct the monthly salary of R3000 that she pays to a caretaker for income
tax purposes. The caretaker (who lives in the house and shares the daughter’s
bedroom) is not a registered nurse or a nursing assistant, only looks after the
daughter, and does not perform the house cleaning duties of a domestic worker.
is allowed to deduct this salary, under which section of the Act would that be?
A: The expenses is deductible in terms of s 18(1)(d) of the Income Tax Act due to it being expenditure prescribed by the Commissioner in paragraph 3.2.1 of the South African Revenue Service's List of Qualifying Physical Impairment or Disability Expenditure. Please refer to section 18(2)(b) to calculate your section 18 deduction.
2. Donations made by natural persons
Q: Please advise if donations tax will be applicable when an individual
received a donation in excess of R300 000. Who has to pay the donations
tax (the donor or receiver) and by when and at what rate?
A: A natural person may donate an amount of R 100 000 annually without incurring
a liability for donations tax. The donor is liable to pay the donations tax,
but in the event that the donor fails to pay the donations tax, the donee will
be held responsible. Donations tax is payable at a flat rate of 20%.
3. VAT implications: Property developers
Q: I am a bit confused with the
VAT issues concerning a Property Developer. Here is a few scenarios:
- Example one: The property developer is busy with the development of a
residential townhouse complex. Input VAT is claimed on all expenses that carry
VAT. When the property is sold, output VAT will be payable on the selling
price. Please advise if the VAT treatment of the above is correct?
- Example two: A townhouse complex was completed and some of the units
sold. Input VAT was claimed as per example one. Some units are rented out with
no zero rate output VAT as it is residential property. No input VAT was written
back since the client intended to sell it within the grace period of 36 months
that is provided in section 18B.
- Initially the grace period was until 2014 – am I correct to say that
this changed as long as it is not rented out for longer than 36 months?
- While it is being rented out, can all the input VAT related to this
property that is rented out, be claimed, for example: electricity costs, agency
fees and maintenance?
- Example three: The developer decided to keep one of the units and rents
it out. Input VAT was paid back to SARS according to the prescribed rules.
- Since this is residential property, no VAT is charged. Is this then subject
to zero rate and must it be included on the VAT return under zero rated
- What input VAT related to this property may be claimed, in other words:
- May VAT be claimed on
agency fees – provided that they charged VAT?
- May VAT be claimed on
Body Corporate levies if it carries VAT?
- May VAT be claimed on
the maintenance cost of the flat?
A: Example 1 and 2
- Your understanding is correct. The relief will
not apply in respect of residential properties temporarily let before 10
January 2012, or if the developer did not submit the required declaration to
SARS within the prescribed 30-day period. Property developers should therefore
ensure they are compliant in terms of the declarations, to receive the expected
- The supply of residential accommodation
is exempt from VAT and not zero rated (section 12 of the Value Added Tax
Act). This means that the expense was not incurred in making a taxable
supply, therefore input VAT will be denied.
- Same as above, residential accommodation
is exempt from VAT.
4. VAT implications:
Property developers – s 18B
Q: "The relief will not apply
in respect of residential properties temporarily let before 10 January 2012, or
if the developer did not submit the required declaration to SARS within the
prescribed 30-day period. Property developers should therefore ensure they are
compliant in terms of the declarations, to receive the expected relief.”
- If the developer completed the unit
after 10 January 2012 and then rents it out – must SARS be informed and if
- If the property was completed before 10
January 2012 and it is rented out at this stage (while it is in the market)
- what should have been done according to SARS, as we did not do anything?
A: Below please find s 18B of
the Value Added Tax Act which is relevant to your query. It is my understanding
that the relief in terms of s 18B will only apply to property if the rental
agreement was concluded on or after 10 January 2012 and SARS was furnished
with a declaration in such a form or manner as prescribed.
18B. Temporary letting of residential fixed property.—(1) For the purposes of
this section "developer” means a vendor who continuously or regularly
constructs, extends or substantially improves fixed property consisting of any
dwelling or continuously or regularly constructs, extends or substantially
improves parts of that fixed property for the purpose of disposing of that
fixed property after the construction, extension or improvement. (2)
Notwithstanding the provisions of section 18 (1), where goods being fixed
property consisting of any dwelling— (a) is developed by a vendor who is a
developer wholly for the purpose of making taxable supplies or is held or
applied for that purpose; and (b) is subsequently temporarily applied by that
vendor for supplying accommodation in a dwelling under an agreement for the
letting and hiring thereof, the supply of such fixed property shall, subject to
subsection (3), be deemed not to be a taxable
supply in the course or furtherance of that vendor’s enterprise. (3) The fixed
property contemplated in subsection (2) shall be deemed to have
been supplied by that vendor by way of a taxable supply for a consideration as
contemplated in section 10 (7) in the course or
furtherance of that vendor’s enterprise at the earlier of— (a) a period of 36
months after the conclusion of the agreement contemplated in subsection (2) (b); or (b) the date that the
vendor applies that fixed property permanently for a purpose other than that of
making taxable supplies. (4) Where a vendor makes a supply of fixed property as
contemplated in subsection (2) the vendor shall within 30
days of making that supply furnish the Commissioner with a declaration (in such
form or manner as the Commissioner may prescribe) containing such information
as may be required.
5. VAT & reverse charge mechanism
Q: A foreign company supplies
services to a local company that is a registered VAT vendor. The foreign
company is not registered for VAT purposes in South Africa. Is this a problem?
This process is called "reverse charge” in the European Union.
To my understanding, the local registered company wants to include the
service charge in its output VAT and then claim the input VAT. Does this apply
in South Africa?
A: Most African countries make
use of the "reverse charge” mechanism however; South Africa is not one of them.
In the event that the person who receives the supply is not a VAT vendor, or
the supply is not received for the making of further taxable supplies, the
person receiving the supply have to account for VAT. Below please see an
excerpt from the VAT 404 Guide for Vendors.
VAT at the standard rate is levied on the supply of imported services.
The recipient of the imported services is responsible for the declaration and
payment of the VAT.
What is an imported service?An imported service is – a
supply of services; made by a supplier who is not a resident of the RSA, or who carries on a
business outside the RSA; to a recipient who is a resident of the RSA; to the
extent that such services are not used in the course of making taxable
Examples of when a resident recipient has to account for VAT on imported
services are where the recipient – is not a registered vendor; is a vendor, but
the services are wholly or partly for making exempt supplies; and is a vendor,
but the services are applied for private purposes.
Tax implications arising from permanent relationships
how and when common law marriages are to be taxed. As I understand in terms of
section 1, partners are considered spouses for income tax purposes if they are
in a relationship that is deemed to be permanent. How do we interpret this? What
guidelines are there to determine when the relationship is permanent (is it
living together for 12 months or more)? Once it has been determined that the
couple are spouses for tax purposes, are they then taxed under community of
property rules or as out of community of property?
A: In the absence of proof to the contrary
(recognised by a court of law), live-together unions of a permanent nature
are deemed to be out of community of property.