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Frequently asked questions - May

20 May 2013   (0 Comments)
Posted by: Author: Dieter van der Walt
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Source: Dieter van der Walt (Technical support executive, The SAIT)

Query 1
Question:

Company A is a South African company and trades as a tour organizer. Company A obtains tour packages to Israel from a tour operator/travel agent outside South Africa. The package includes all flights and airport taxes to and from Israel, Hotel accommodation, sight-seeing, bus transport, breakfast and dinners. Company A then adds its "commission/fee/profit" to the price and makes the tour package available to South Africans as an all-inclusive tour to Israel. 

The South African tourist will pay Company A the full tour price where after Company A will settle the tour cost with the foreign tour operator/travel agent before departure and retain his portion of the package offered as his "administration fee/commission/profit". My question now is: Should Vat be levied at 14% on the full tour price as offered to South Africans, should Vat only be levied on the "administration fee/commission", or should vat be levied at 0% as the service is rendered as an export service and because the final consumption of the service is outside the Republic? 

Answer:

The South African VAT system is a destination based tax that imposes tax on goods or services consumed in the Republic, regardless of where the goods are produced or services are supplied. Exports which are not consumed in the country are therefore free of tax, and imports which are consumed in the country are taxed when imported. Accordingly, supplies of goods or services consumed in the Republic, regardless of to whom the goods or services are supplied, are taxable at the standard rate for VAT purposes. Where consumption of the goods or services supplied will occur outside the Republic, provision is made for such supplies to be zero-rated.

  •  Zero-rated - the fees/commission charged by the local entrepreneur for the service of arranging the tour package will be zero-rated according to section 11(2)(ℓ) of the VAT Act if the foreign entrepreneur and the foreign tourist, i.e. the recipients, are outside the Republic at the time the service of arranging the tour package is rendered.
  • Standard–rated - the fees/commission charged by the local entrepreneur for the service of arranging the tour package will be standard-rated according to section 7(1)(a) of the VAT Act if the foreign entrepreneur or foreign tourist, i.e. the recipient, is in the Republic at the time the service of arranging the tour package is rendered.

Query 2
Question 

In terms of the new section 12P , "Exemption of amounts received or accrued in respect of government Grants”, we were wondering what is the difference between a taxable and a non – taxable government grant ?

Answer

A comprehensive legislative list of exempt grants will be published and updated annually. The purpose of this Ministerial authority is to provide exemption for certain grants devised between the annual budget periods. The list as published can be found in the 11th Schedule and will apply to grants received or accrued on or after 1 January 2013.

Query 3
Question

Our client is a section 18A company with donations received for the year of at least R1 million. Our question is whether this company may register for VAT and thus claim back their entire input vat, although no vat will be payable on the donations received. Also, please confirm whether no output VAT will be payable on the donations that he received BUT only on all other income?

Answer

Different VAT rules apply to Non-Profit Organisations (NPO).

The general rule regarding the minimum voluntary registration threshold of R50 000  as described in, does not apply to welfare organisations, as a special provision in the definition of "enterprise” allows a welfare organisation to apply for registration even where (taxable) supplies are made for no consideration. This special rule is only applicable in respect of the welfare activities listed in Regulation 112 which are conducted by a welfare organisation. The benefit to a welfare organisation of registering for VAT is that it will be entitled to deduct input tax in respect of expenses related to its welfare activities,even where no consideration is charged on supplies and no output tax is declared.

Registration will, however, not be allowed to the extent that the organisation makes exempt supplies. Exempt supplies are listed in section 12 of the VAT Act and include supplies like financial services, residential accommodation in a dwelling, and the supply of donated goods and services. Registration will also not be allowed in so far as the activities involve the making of supplies for no consideration in pursuance of religious, philosophical or other belief systems, as these do not qualify as "welfare activities”.

If an association not for gain (not being a welfare organisation) incurs VAT on expenses in soliciting donations, it may not deduct the VAT incurred as input tax. This is because the expenses are not incurred by the association for the purpose of making taxable supplies for a consideration. However, a welfare organisation is entitled to deduct the VAT incurred in soliciting donations as input tax, as this activity is integral to the welfare activities which falls within the ambit of its taxable supplies (or "enterprise”), which includes the making of taxable supplies for no consideration.

Consider whether your client would be considered a welfare organisation; please see Annex A as published in the VAT 414 guide. 

Query 4
Question

Can you assist with some information on SARS’ practices relating to medical expenses? 

This includes:

  1. Medical costs paid by a tax payer in respect of a dependent BUT this dependent is not a member of the tax payer’s medical aid (Family of 6 only have 4 on medical aid – SARS does not want to allow expenses in respect of 2 which is not on the medical aid – Income Tax Act – Sec. 18(b)(i).
  2. Medical costs paid by a dependent of the tax payer, but claimed by the tax payer (Medical aid is in wife’s name, but husband paid for additional expenses – SARS does not want to allow this deduction in the wife’s name).

Answer

Below please finds the definition of "dependant” defined in section 1 of the Medical Schemes Act, 1998 

"dependant” means—

(a) the spouse or partner, dependant children or other members of the member’s immediate family in respect of whom the member is liable for family care and support; or
(b) any other person who, under the rules of a medical scheme, is recognised as a dependant of such a member and is eligible for benefits under the rules of the medical scheme;

S 18(4)(A) of the Income Tax Act gives this definition a further meaning;

(4A) For the purposes of this section "dependant” in relation to a taxpayer means—
(a) his or her spouse;
(b) his or her child and the child of his or her spouse;
(c) any other member of his or her immediate family in respect of whom he or she is liable for family care and support; and
(d) any other person who is recognised as a dependant of that person in terms of the rules of a medical scheme or fund contemplated in subsection (1) (a) (i) or (ii),at the time the contributions contemplated in subsection (1) (a) were made, the amounts contemplated in subsection (1) (b) or (c) were paid or the expenditure contemplated in subsection (1) (d) was incurred and paid.

For purposes of calculating the amount to be deducted in terms of the Act, s18 furthermore requires that the amount had to be paid by the taxpayer during the year of assessment.

Conclusion 

All contributions and out of pocket expenses paid by the taxpayer on behalf of a "dependant” (need not be member on medical aid) will be taken into account to calculate the deductible amount provided that those expenses were paid by that taxpayer. It is my understanding that the expenses paid by the taxpayers spouse will not be taken into account – the spouse must claim this in his own tax return.



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Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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