Frequently asked questions - May
20 May 2013
Posted by: Author: Dieter van der Walt
Source: Dieter van der Walt (Technical support executive, The SAIT)
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?
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.
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 ?
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.
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?
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
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.
assist with some information on SARS’ practices relating to medical expenses?
- 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).
- 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).
Below please finds the definition of "dependant” defined in section 1 of the Medical Schemes Act, 1998
(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
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.
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.