FAQ - 9 October 2014
08 October 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Claiming transfer
duty on property before registering for VAT
Q: I have a
client who has just formed a new company. The company seeks to purchase a commercial
property and we want to register it for VAT in order to claim the transfer duty
because the seller is not a VAT vendor. SARS is stating that we can only
register if we have lease agreements in place for the tenants. The lease
agreements will however only be applicable once the transfer has taken place
and renovations have been made. Will the transfer duty still be claimable even
though payment will be on a date prior to the VAT registration if we have to
wait for the lease commencement date?
A: We accept that
the application to register is not made in terms of section 23(1) of the VAT
Act, but the guidance will not materially differ. Remember that the input tax (or a portion
thereof) may only be deducted to the extent that payment has been made – see
section 16(3)(a)(ii)(bb). We further accept that the intended use of the
property is to make taxable supplies.
Please note that the input tax in this instance (the
potential deduction) is not the transfer duty, but rather "the tax fraction …
of the lesser of any consideration in money given by the vendor for or the open
market value of the supply (not being a taxable supply) to him by way of a
sale… of any second-hand goods situated in the RSA” - in terms of the
definition of input tax in section 1(1) of the Value-Added Tax Act. According
to the definition "second-hand goods” means goods which were previously owned
and used and we submit that in this instance the fixed property is in fact
second hand goods as defined.
The goods (or services) were acquired after incorporation,
but before the effective date of registration as a vendor. The basis for a deduction
of the taxes relating to supplies prior to the VAT registration, is found in
section 18(4) and the deduction is therefore made in terms of section 16(3)(f).
The deduction in terms of section 16(3) is an amount determined in accordance
with the formula provided in section 18(4) which uses the adjusted cost or the
open market value.
Please also note that no input tax may be deducted if the
vendor does not have the required documentation to substantiate the deduction –
see item C in Annexure A of Interpretation Note 49.
2. The foreign
service income exemption for crew members of a ship
Q: Though the
taxpayer, who is a marine engineer, met all other requirements of the section 10(1)(o)(ii)
income tax exemption, he did not spend more than 60 continuous days in a 12
month period outside South Africa. I informed my client of this and he informed
me that because he is a marine engineer, he does not have to meet the
requirement of 60 continuous days if he met the "183 day” requirement.
My view is that he fell short of one of the requirements of
section 10(1)(o)(ii) and for this reason his income is not exempt. I am not
sure on the legitimacy of the taxpayer’s claim.
A: Our guidance
assumes that the client doesn’t work on a South African ship (section
12Q). The remuneration will then only be
exempt if the section 10(1)(o)(i) exemption applies.
Section 10(1)(i) exempts from normal tax any form of
remuneration as defined in paragraph 1 of the Fourth Schedule, derived by any
person as an officer or crew member of a ship engaged
aa) in the international transportation for reward of
passengers or goods; or
bb) in the prospecting exploration or mining (including
surveys and other work of a similar nature) for any minerals (including natural
oils) from the seabed outside the Republic, where such officer or crew member
is employed on board such ship solely for the purposes of the 'passage' of such
ship, as defined in the Marine Traffic Act, 1981 (Act No. 2 of 1981),
if such person was outside the Republic for a period or
periods exceeding 183 full days in aggregate during the year of assessment.
The income of a member of a crew will be exempt only if he
was on board the ship for a specific purpose only. Interpretation note 34
provides no definition of a crew member, but we submit that the engineer would
be an officer or crew member. Furthermore, in an unreported tax case it was
stated that the section 10(1)(i) exemption will apply "if the recipient was on
board the ship solely for purposes of navigating it.”
3. Whether it is
compulsory to use the annual average exchange rates for converting income
denominated in a foreign currency to rands.
Q: I have a
client who worked overseas and I need to declare the income earned. Am I forced
to use annual average exchange rates or may I use the monthly exchange rates
for the months when he was paid?
A: Section 25D(3)
of the Income Tax Act provides that a natural person may elect that all amounts
received by or accrued to, or expenditure or losses incurred by that person in
any currency other than the currency of the RSA, be translated to the currency
of the RSA by applying the average exchange rate for the relevant year of
You are therefore not forced to use the average exchange
rate for the relevant year of assessment.
Note that section 25D(1) provides that the foreign currency
amounts may be translated to Rands by applying the spot rate on the date on
which that amount was so received or accrued or expenditure or loss was so
incurred. In terms of the definition in section 1(1) ‘spot rate’ means the
appropriate quoted exchange rate at a specific time by any authorised dealer in
foreign exchange for the delivery of currency.
The ‘monthly exchange rates’ are therefore not spot rates.
Table B (available on the SARS web) provides the average
monthly exchange rates which can be used.