FAQ - August 2013
05 August 2013
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. VAT supporting documents for the purchase of commercial property
Q: Can you advise which documentation needs to support VAT claimed on the
purchase of commercial property?
We purchased property (commercial property in an
office complex) from a registered VAT vendor.
We received the final account from the attorneys. The purchase price along with the attorney’s
fees that we paid was stated thereon. According to the attorney, this document constitutes
a Tax Invoice, but it is more like a reconciliation of what came in and what
went out). We also have the signed copy of the sales agreement where the
purchase price is stated and it specifically mention that the purchase price is
Would this documentation be sufficient or will any
other documentation be required in order to claim the input VAT?
A: Please see SARS Interpretation
Note No 49: Documentary proof required in terms of section 16(2) to
substantiate a vendor’s entitlement to "input tax” or a deduction as
contemplated in section 16(3) for your reference.
In terms of the table for vendors registered on the invoice basis (and
item E on page 4) the following is required for fixed property acquired under a
The following information is required in terms of section 20(4) of the
a. Tax invoice OR
a deed of sale containing the information as required in terms of section 20(4)
of the VAT Act,
b. Proof of payment.
4) Except as the Commissioner may otherwise allow, and subject to this
section, a tax invoice (full tax invoice) shall be in the currency of the
Republic and shall contain the following particulars:
a) the words "tax invoice" in a prominent
b) the name, address and VAT registration
number of the supplier;
c) the name, address and where the recipient is a
registered vendor, the VAT registration number of the recipient;
d) an individual serialized number and the date upon
which the tax invoice is issued;
e) full and proper description of the goods
(indicating, where applicable, that the goods are second-hand goods) or
f) the quantity or volume of the goods or services
Provided that the
requirement that the consideration or the value of the supply, as the case may
be, shall be in the currency of the Republic shall not apply to a supply that
is charged with tax under section 11.
i) the value of the
supply, the amount of tax charged and
the consideration for the supply; or
ii) where the amount
of tax charged is calculated by applying the tax fraction to the consideration, the consideration for the
supply and either the amount of the tax charged, or a statement that it includes a
charge in respect of the tax and the rate at which the tax was charged,
For purposes of fixed property acquired under a taxable supply, as
referred to above, the term "tax invoice” includes a document issued by the
supplier in compliance with section 20(7) of the VAT Act.
Section 20(7) of the VAT Act states the following:
Where the Commissioner is satisfied that there are or will be sufficient
records available to establish the particulars of any supply or category of
supplies, and that it would be impractical to require that a full tax invoice
be issued in terms of this section, the Commissioner may, subject to such
conditions as the Commissioner may consider necessary, direct-
a) that any one or more of the particulars specified
in subsection (4) or (5) shall not be contained in a tax invoice; or
b) that a tax invoice is not required to be issued, or
c) that the particulars specified in subsection (4) or
(5) be furnished in any other manner.
implications of a CCME attribution award
query relates to a CCMA arbitration award. My client was unfairly dismissed
(without payment of the salary for the month) on 28 February 2013 and took the
matter to the CCMA. A commissioner heard the case on 20 March 2013 and ruled
that the dismissal was unfair. He ordered that the salary for February 2013
must be paid as well as R10 000 for the unfair dismissal. These amounts were
paid in April 2013 and May 2013, respectively. The employer then included both
amounts on the 2013 IRP5. Was this correct? Should any of the amounts not be
taxed in the 2014 tax year?
A: Included in the definition
of "gross income”, according to section 1 of the Income Tax Act, is certain
Paragraph (c) – payments in respect of services
Paragraph (d) – by virtue of termination of employment
Paragraph (f) – breach of contract of employment
Paragraph (c) of "gross income” taxes any amount, including any
voluntary award, received or accrued in respect of services rendered
or to be rendered, or by virtue of any employment or the holding of any
office. In order to determine whether the amount falls within the ambit of
paragraph (c) of "gross income”, a direct link between services rendered and
the payment received must be established. Where an amount is received, in
respect of past services rendered as well as for compensation for loss of
office, the dominant purpose of the amount paid, must be determined [as
was determined in ITC No.1093, 28 SATC 269, 1967(16)]. If it can be
established that the amount has been allocated between services rendered and
compensation for loss of office then the former will be included in paragraph
(c) and the latter in paragraph (d) of "gross income”.
In taking all of the relevant specific inclusions of "gross income” into
account, the purpose for which the payment is received must be established e.g.
is the payment in respect of services rendered [paragraph (c)], or is it for
the termination of employment [paragraph (d)], or is it for breach of contract
of employment [paragraph (f)].
In terms of paragraph (d) of the definition of "gross income” any
amount, including a voluntary award, received or accrued in a year or period of
assessment in respect of relinquishment,termination, loss, repudiation, cancellation or variation of any office
or employment or of any appointment (or right or claim to be appointed) to any
office or employment, must be included in"gross income”.
Where the provisions of the above-mentioned paragraph (d) are not
applicable in this situation, paragraph (f) of the definition of "gross income”
in section 1 of the Income Tax Act may tax "any amount received or accrued in
commutation of amounts due under any contract of employment or service”.
Depending on the terms of a contract of employment, a breach of such contract can result in amounts "due” being
taxable in terms of the mentioned paragraph (f). Therefore, if an employer breaches
a contract of employment by terminating the contract, prior to its expiry,
the compensation paid by the employer will be taxed because the compensation
will be received or accrued in commutation of amounts due under a contract of
employment or service.
It is my understanding, and based on the information provided that the amount
awarded to the employee will be included in "gross income” by either pars (c),
(d) or (f) of that definition on the date when the award was made (date
of accrual), and must be included in that year of assessment.
In circumstances where an employee incurs legal costs in bringing a
dispute to Court, section 11(c) of the Income Tax Act permits the employee to
claim a deduction of such costs actually incurred in relation to the amount of the award that will be included in
his or her income for income tax purposes. However, where these legal
costs are subsequently recovered, as part of the award by the CCMA or the Labour Court, they will be taxed
in terms of the recoupment provisions of section 8(4)(a) of the Income Tax Act.
of supply – invoice basis
Q: I have a
client who is a registered VAT vendor on the invoice basis. Their main customer
has changed their account payment term to 120 days. My client is not in a
position to cease doing business with this customer.
Invoices to this customer must be included in the
VAT201-return for the tax period during which a tax invoice was issued or
payment was received from the client (whichever occurred first). This output
tax is then paid over to SARS but the client only receives payment from the
customer during a future tax period. The client is adamant that he will not be
able to pay over this output tax and wants to know if there are alternatives to
remit these taxes.
A: According to the general
time of supply rule in section 9(1) of the VAT Act, a supply occurs at the
earlier of the following events:
At the time the invoice is issued or;
At the time any payment is received by the
Section 20(1) requires that an invoice must be
issued within 21 days of the date of the supply.
Certain special timing rules are contained in s
9 of the VAT Act that relate to certain specific transactions such as rental
agreements, fixed property, etc. If one of the special rules applies, then the
general time of supply rule may not apply. You are not specific in the type of
supply made by your client and I am therefore not in a position to elaborate on
If none of the special rules applies, then unfortunately your client
would have to account for the supply once the invoice is issued. You should
however keep in mind that your client may in turn claim input VAT (depending on
the nature of the input costs) even if payment has not been made to the
supplier provided that your client is in possession of a valid tax invoice.
4. Declaration of rental income from
more than one property (Income Tax)
Q: I have
a few clients that invested in rental properties in their own name. My
understanding is that each rental property must have its own income and expense
statement and on the Income Tax return, each property will thus have its own
business schedule. Therefore, for one client who has five properties (some
making profit and some losses) I will enter "five” as the number of businesses
on the ITR12-form and I will have a schedule for each property.
A new client, who has two rental properties, came
to see me. The client’s income and expenses are calculated together for both
properties as one business. I asked if she could split it between the two
properties, but she is reluctant to do it since the previous accountant always
accepted it as one business entity.
What is the correct way to declare rental
properties in a name of an individual when they have more than one property?
If the answer is that it should be separate the
next question is up to what number of properties? If the answer is that it
should be separate, what will the situation be if the properties are all in a
Q: Section 20(1)(b)
generally allows the taxable income and assessed losses of trades carried on by
a taxpayer to be set-off against each other (unless the assessed loss arose
from a trade carried on outside South Africa).
This rule is however subject to section 20A which
applies to natural persons who are taxed at the maximum marginal rate and meet
the requirements of either section 20A(2)(a) (a trade which has realised new
assessed losses for at least 3 of the last 5 years of assessment) or (b)
(suspect trades, which include letting of residential property to relatives).
There are some exceptions in the remainder of section 20A that may allow the
losses of a trade mentioned earlier to be set-off against taxable income of
other trades e.g. section 20A(3); we recommend that you also consider whether
any of these apply to the letting of the residential property(s) by your
As you have indicated in the query, it becomes
important to identify whether the letting activities constitute a single trade
or whether each property that is let is a separate trade. A trade is amongst
other defined in section 1 as "business... or the letting of any
property...". This definition would suggest that the letting of each (any)
property constitutes a trade and that section 20A should be applied in to each
property viewed separately. It is however submitted that if the client manages
all the rental properties together as a whole, this may constitute a single
business and therefore a single trade. This view is supported by the fact that the
Explanatory Memorandum at the time when section 20A was enacted stated that:
"Whether one or more related activities constitute the same trade or
multiple trades is a question of fact" (an exception exists in respect of
multiply farming operations, but this does not automatically apply to other
trades as well). The question of whether each rental property constitutes a
trade will therefore depend on the facts and circumstances of how your client
deals with these properties (as separate businesses or as a single unit).
It should be noted that if the properties are
let by a company, section 20A will not be applicable as it only applies to a
natural person. The assessed losses from loss-making properties can be set-off
against the taxable income of profitable properties in this case.
Whether the rental properties constitute single or separate trades
depends on the facts and circumstances of each case as discussed above. The
fact that your clients previous accountant was of the view that the trades be
considered one trade might be indicative to the fact that he/she considered the
facts and concluded that the trading activities constituted a single trade. We
would however suggest that you consider this position in light of the above