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FAQ - August 2013

05 August 2013   (4 Comments)
Posted by: Author: SAIT Technical
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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 VAT inclusive.

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 taxable supply:

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. 

The following information is required in terms of section 20(4) of the VAT Act:

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 place;
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 services supplied;
f) the quantity or volume of the goods or services supplied;
g) either-

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,

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.

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.

2. Tax implications of a CCME attribution award

Q: My 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 special amounts:

Paragraph (c) – payments in respect of services
Paragraph (d) – by virtue of termination of employment
Paragraph (f) – breach of contract of employment

Paragraph (c)

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)].

Paragraph (d)

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”.

Paragraph (f) 

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.

3. Time 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 supplier.

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 this. 


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 company?

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 client.

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 discussion.


Michael G. White says...
Posted 06 August 2013
Time of supply :client could consider issuing invoice on first day(not the last day) of an appropriate tax period (assuming two month tax period).Secondly ,he should request/persuade the customer to at least pay the vat levied on the supply before the relevant return is due.
Michael G. White says...
Posted 06 August 2013
CCMA awards: Inclined to agree that awards accrue on the date the CCMA made the awards,which occurred after the 28 February 2013(2014 tax year).In fact should the employer have appealed the CCMA's decision and the matter finally have reached the SCA the award I believe would accrue on the date the SCA made its decision,probably a few years later(refer CIR v Golden Dumps (A) 55SATC 198).
Michael G. White says...
Posted 06 August 2013
Property rentals:Should any of the properties or most of them from which rent is receivable be predominantly used for non trade purposes eg beach cottage used by family and relatives , other property let to adult children these properties would in my view have to be separated from the other commercial rent producing properties .Reason Sars would view these properties on a different footing from those let at arms lenght.Hence I agree matter will depend on facts and circumstances of how he deals with each property.
Paul J. Butler says...
Posted 06 August 2013
Provided no partnership(s) in the properties exist, I prepare one set of financials for all properties and treat as one business. If one or more of the properties have a vested partner, I will separate those and prepare separate financials for the partnerships. This in order to identify to SARS who the other partners are. In the CCMA question, my gut feeling is that the income and compensation accrued in the 2013 tax year and therefore taxable in that year. Paul J Butler TT (SA)



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