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Can a PBO that is a vendor claim input VAT on a fixed property purchase?

14 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Can a PBO (registered in terms of s10 of the Income Tax Act but NOT a welfare organization in terms of section 30 of the income tax act) that is a registered VAT vendor claim any VAT charged on the purchase of the property?

The PBO wishes to purchase a property in order to further its public benefit activities (PBAs) which are exempt supplies in terms of the VAT act. The PBO also makes a small amount of taxable supplies which is why it is registered as a VAT vendor. In terms of the Transfer Duty Act, any transfer duty on the property sale is exempt in terms of section 9(1)(c)(ii). However, as the seller is VAT registered, the seller is levying output VAT on the sale. Can the PBO apply for a VAT exemption on this specific transaction? Or can the input VAT be claimed based on the exemption in terms of the Transfer Duty Act.

A: Our guidance assumes that the public benefit organisation has been approved by SARS in terms of section 30(3) of the Income Tax Act.  You are then correct that it would qualify for an exemption from Transfer Duty if the "property acquired by such public benefit organisation… the whole, or substantially the whole, of which will be used for the purposes of one or more public benefit activity carried on by such public benefit organisation…” – section 9(1)(c) of the Act.  Section 9(15) merely ensures that only VAT or Transfer duty is paid and therefore doesn’t provide any relief. 

A similar ‘exemption’ is however not contained in the Value-Added Tax Act.  As the public benefit organisation will be using it for purposes of exempt supplies it would also not be able to make a deduction if they were registered as a vendor.  The organisation can therefore not apply to SARS for the output tax not to be levied.  

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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