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FAQ - 9 March 2016

09 March 2016   (1 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Can a VAT vendor claim input VAT on a property sold to him by a non-vendor?

Q: If an unregistered person sells a property to a VAT registered Company, can the new company claim input VAT? 

A: In terms of the definition of input tax in section 1(1) of the Value-Added Tax Act ‘an amount equal to the tax fraction (at the time the supply is deemed to have taken place) 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 by a resident of the Republic (RSA) … of any second-hand goods situated in the RSA’ will be input tax.   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.  (Note: It is therefore not the transfer fees, we assume transfer duty, that is deducted but of course the input tax on the transfer fees would also qualify.)  

The deduction can then be made ‘where the goods or services concerned are acquired by the vendor wholly for the purpose of consumption, use or supply in the course of making taxable supplies or, where the goods or services are acquired by the vendor partly for such purpose, to the extent (as determined in accordance with the provisions of section 17) that the goods or services concerned are acquired by the vendor for such purpose’.  

In terms of section 17(1) the input tax must be an amount which bears to the full amount of such tax or amount, as the case may be, the same ratio (as determined by the Commissioner in accordance with a ruling as contemplated in section 41A or 41B) as the intended use of such goods or services in the course of making taxable supplies bears to the total intended use of such goods or services.  SARS issued a binding general ruling (number 16) that prescribes the turnover-based method of apportionment.  

Remember that the input tax (or portion) may only be deducted to the extent that payment has been made – see section 16(3)(a)(ii)(bb). 

The recipient of second-hand goods must obtain and maintain a declaration by the supplier stating whether the supply is a taxable supply or not, and must further maintain sufficient records to enable specific particulars to be ascertained as is stipulated in section 20(8) of the VAT Act.  

2. Is there a legal right to withhold a client’s documents when there are fees outstanding?

Q: Where in the Tax Administration Act does it stipulate that it is illegal for an accountant or tax practitioner to hold onto a client’s documents when the client has an outstanding account with them? One cannot prevent a taxpayer from meeting his tax obligations. Would not releasing an eFiling profile and documentation to a new client be illegal?

A: There is nothing in the Tax Administration Act that deals with this.  

The general rule is that all documentation and information that was provided to the practitioner or obtained and/or produced by the practitioner in relation to the client’s instruction, belongs to the client.  This includes the supporting documentation that the practitioner used in order to complete the financial statements or tax return.  Accordingly, as a general rule, it is the client who is entitled to ask for such documents and records from the previous tax practitioner.

A tax practitioner must support the profession by support and co-operating with other tax practitioners as this is an essential element of professional character. It is therefore in everyone’s best interest to support other practitioners and to deal with fellow practitioners in a manner that will not detract from the reputation and well-being of the profession as a whole.

Other than the above, this is more a legal issue of whether or not you as the member has a valid lien over the documents in question.  The withholding of client records, when the client has not paid the practitioner is a legal issue and depends on the contract that the practitioner has signed with his client. The Code of Professional Conduct does not deal with the withholding of client records as such. Where the practitioner wishes to withhold the client records they would need to refer to the contract / agreement with the client to agree on whether the withholding of documents is an option available to the practitioner. The collection of debt is a legal issue and the practitioner would be advised to seek legal advice and follow normal debt collecting procedures.

SARS's view is that it is against the law to refuse the request.  They believe that it prevents the taxpayer from meeting his or her obligations to file a return.    

Accordingly, if there is no legal right to withhold client’s documentation, the practitioner should hand the relevant documentation over to the superseding practitioner.  

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.  

Comments...

Abdul C. Carrim says...
Posted 07 August 2016
How would the current tax practitioner deal with a possible sars audit going back 5 years if files are handed over to a new tax practitioner taking over a clients tax affairs at the request of a client?

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