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Input VAT on car rental where car is used for work purposes

12 December 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Please correct me on this one.

I have a client who flew up to Joburg on work, hired a vehicle (a VW Polo) to travel to the client. We claimed the VAT on the Eurocar invoice. SARS has disallowed this because it was a car and not a bakkie. You cannot claim the VAT on the purchase of a car, only on a bakkie but car hire?

A: The client was not entitled to make the deduction of the input tax in this regard.  This is in terms of section 17(2)(c) of the Value-Added Tax Act.  We copied it for your convenience below:

"… a vendor, shall not be entitled to deduct from the sum of the amounts of output tax and refunds contemplated in section 16(3), any amount of input tax in respect of any motor car supplied to or imported by the vendor… and any derivative of "supply” shall be construed accordingly”.  

In terms of section 1(1) "supply” includes performance in terms of a sale, rental agreement, instalment credit agreement and all other forms of supply…  It is therefore not limited to a sale (or purchase as you say).  

SARS confirms this interpretation when they say (in the VAT404):

"As a general rule, an input tax deduction may not be made by a vendor if a vehicle falling within the definition of a "motor car” is acquired, even if it is used in the course of making taxable supplies and regardless of the mode of acquisition. For example, the motor car could be acquired by way of outright purchase, importation, instalment lease agreement, operating rental agreement or casual hire.”

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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