FAQ - 16 September 2015
16 September 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Can I claim input VAT on vehicles such as club
cabs and what proof will suffice?
Q: My client promotes veterinary farming products
for various companies on a commission basis. He also buys and sells dog food
and sundry products. He is in the process of trading in his Toyota Hilux for
another vehicle, and it seems that one can claim VAT on certain cabs?
With regard Interpretation note 82 (March 2015), will he be able to claim input
VAT as long as the vehicle is used predominantly for business and it complies
with the objective test of passenger versus loading area?
"Club cabs and extended cabs are
generally used on public roads, have three or more wheels and are designed for
carrying both passengers and goods. The objective test must therefore be
applied to determine whether these vehicles are in fact constructed or
converted wholly or mainly for the carriage of passengers.
In applying the objective test, one must determine which area measures more;
the passenger area or the dedicated load area. The entire passenger cabin
(enclosed passenger seating area excluding the engine and loading area), being
the seating area is regarded as the area available to passengers.
It follows that if the passenger area measures more than the dedicated load area;
the vehicle is designed mainly for the carriage of passengers and falls within
the ambit of the definition of a "motor car”. Alternatively, if the dedicated
load area of a motor vehicle is larger than the passenger area, the vehicle is
constructed or converted mainly for carrying goods rather than passengers (that
is, not a "motor car” as defined) and provided the vehicle is used for the
purpose of making taxable supplies, a vendor will be entitled to an input tax
deduction on acquisition of such vehicle”
What is the documentary proof that SARS needs when a VAT claim is made on such
are not really sure what documents SARS would require if this is in
dispute. The motor manufacturer specifications may well be sufficient to
meet the onus of proof with regard to the "constructed or converted wholly or
mainly for the carriage of passengers double cab light delivery vehicle”
"double cab light delivery vehicle” would certainly not meet this requirement
and is specifically listed in the definition (as being excluded). In the
SARS note that you referred to it is stated that "…vehicles that cast doubt as
to whether they are designed for the carriage of passengers must be subjected
to a test to determine whether they are designed wholly or mainly for the
carriage of passengers. Vehicles with these characteristics include panel vans,
club cabs, single cab light and heavy delivery vehicles.”
note continues to say that "the objective test requires a one dimensional
measurement of the length of the area designed for the carriage of passengers
in relation to the dedicated loading space in a vehicle. In applying the
objective test, one must determine which area measures more in length; the
passenger area or the dedicated loading space. The engine area should be
disregarded for the purposes of this determination. If the passenger area
measures more than the dedicated loading space, the vehicle is constructed
mainly (that is, more than 50%) for the carriage of passengers and will thus constitute
a "motor car” as defined.
dedicated loading space is the area that is constructed solely for a purpose
other than the carriage of passengers. There are vehicles constructed with an
area within the vehicle that serves a dual purpose of providing both loading
and passenger space (that is, fold-up seats that provide a loading area when
folded up). Due to the fact that this area can be used to accommodate
passengers, the entire area will be regarded as a space designed for the
seating of passengers.
such as club cabs, extended cabs and panel vans do not fall squarely within the
first four categories listed in the definition of "motor car” and therefore the
objective test must be applied to these vehicles in order to determine whether
such vehicles fall within the last category. These vehicles must not be
construed as an exhaustive list of vehicles that are subject to the objective
2. What are the VAT implications when a client pays
for goods with a fraudulent cheque?
Q: An individual purchased goods via cheque at our retail store. When the cheque was deposited the funds were not released by the bank. We are debating whether this is bad debt or in fact theft. In the case of bad debt, SARS requires proof that sufficient energy was spent to obtain a bad debt before claiming the VAT. I am, however, of the opinion that this is theft and should be handled as such. The customer took the stock without paying for it. I would therefore claim the VAT for the stock which is unpaid for. Is this correct?
A: We can’t comment on the legal nature of this, but don’t necessarily agree that this is a theft of trading stock. From a Value-Added Tax point of view the principle is that there was a supply and consideration received. A tax invoice was presumably also issued. The fact that the recipient knew that the cheque was not going to be honoured doesn’t change that and the output tax accordingly had to be accounted for. The same apply with respect to gross income.
return, by the bank of the cheque, creates a debt. It may be easy for the
taxpayer to prove that this amount cannot be recovered. It may be
difficult to trace the individual and demand payment / honouring of the
cheque. In the interim it may well be a doubtful debt.
a Value-added tax we also don’t believe that the vendor can issue a credit note
– as the section 21(1) requirements will not be met. Section 22(1)
requires that the vendor "has written off so much of the said consideration as
has become irrecoverable”.
to Juta VAT, the minimum requirements to satisfy the 'written off as
irrecoverable debt' test may vary for different classes of taxpayer based on
the differing nature and level of sophistication of the taxpayer's accounting
"as has become irrecoverable” refers to individually identifiable debts, which
have become irrecoverable. Section 22 does not allow a deduction for doubtful
debts. SARS regards a debt as irrecoverable if the vendor has complied with
both the following requirements (see VAT NEWS 8 and Guide for Vendors (VAT 404)
- the vendor must have done all the necessary entries
in his accounting system to record that the amount has been written off, and
- must have ceased any recovery action taken by himself and have
decided to either not take any further action or have handed the debt over to
an attorney or debt collector.'
Revenue, New Zealand, has stated that whether a debt has become bad is an
objective test. The question is whether a reasonably prudent business person
would conclude that there is no reasonable likelihood that the debt will be
paid. Factors which are likely to be relevant in this regard are the length of
time a debt is outstanding, the efforts that the vendor has taken to collect
the debt, information relating to the debtor's financial position and payment
of other debts, which information is often gained through recovery action
taken. They have also stated that it is not a requirement that recovery action
be taken before a decision is made that a debt is bad. Further, a debt may be
bad even though the vendor is taking action to recover the debt, as recovery
action may be taken for a number of reasons, even when it is believed that
there is no reasonable likelihood that the debt will be recovered (see Tax
Information Bulletin Vol 12 No 5).
Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.