FAQ - 10 August 2016
10 August 2016
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Can VAT be claimed
on the purchase and conversion of a Quantum?
Q: I have a
client who has a paramedic business. He has purchased Toyota Quantum and had it
converted into an ambulance. Can we claim the VAT on the purchase of the
Quantum and conversion cost?
A: The current
practice generally prevailing is as follows:
"At the time the vehicle is supplied, the vendor should
apply the objective test … which would determine whether the vehicle is a
"motor car” as defined. If the vehicle
is determined to be a motor car, the vendor would not be entitled to deduct
input tax, other than” in respect of a game viewing vehicle or hearse. "In the event that the vendor subsequently
converts such motor car to a non-passenger vehicle (that is, not a motor car)
the vendor will not be entitled to deduct input tax on the original or initial
purchase price of the converted vehicle.”
"The vendor would, however, be entitled to deduct input tax
on the conversion costs, provided such motor car is used, consumed or supplied
in the course of making taxable supplies.”
Ambulance is defined in The Concise Oxford Dictionary to
mean a vehicle specially equipped for conveying the sick or injured to and from
The following definition of ambulance in s 1 of the National
Road Traffic Act 93 of 1996 provides useful guidelines:
' "ambulance" means a motor vehicle specially
constructed or adapted for the conveyance of sick or injured persons to or from
a place for medical treatment and which is registered as an ambulance'
Where an ambulance is acquired for use in the course of
making taxable supplies, an input tax deduction may consequently be claimed.
2. What are the tax
implication when people use the company funds for their personal expenses?
Q: Should this be
treated as drawings i.e. non-deductible in the hands on the company or a fringe
benefit and be taxed in the hands of the shareholder.
A: The tax
treatment depends on the purposes and intention of the parties here. It doesn’t appear to be a dividend. It is also possible that the intention is not
to remunerate him for services rendered to the company. The question then is whether the advance, and
we accept the Companies Act requirements were observed here, was in respect of
services rendered to the company or in respect of the shares held in the company.
If it is the first, a taxable benefit will arise – there is
a debt and no interest is payable (Seventh Schedule). If it is the second, a deemed dividend would
arise (section 64E (4)). In both cases,
there will be no deduction to the company.
3. Under what
circumstance will SARS give a compromise?
submitted incorrectly submitted nil VAT 201 Returns and wants to resubmit the
returns with the correct amounts but will not be able to pay the debt. Would a
compromise with SARS be possible?
A: A compromise
can only be considered if there is a tax debt - see sections 200 - 205 of the
Tax Administration Act. As a nil return
was submitted, no tax debt exists. It
would be appropriate to use the voluntary disclosure. That would lead to a tax debt and one can
then enter into the compromise negotiations.
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.