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FAQ - 7 June 2017

07 June 2017   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Is there any recourse for a client not submitting requested audit documents in the 30 days granted by SARS?

Q: A client's 2016 taxes were submitted and the requested supporting documentation was uploaded the same day via eFiling. SARS then requested further supporting documentation, neither tax payer nor tax practitioner ever received notification for the issued correspondence and as such we never supplied any further information. SARS has now disallowed the expenses claimed and have disallowed the objection. What does the law state regarding supplying supporting documentation? Does SARS not have an obligation to notify the tax payer of any correspondence issued?

A: We accept that the objection was disallowed by SARS because it was not made within the prescribed period or they didn’t condone the late filing thereof. 

The Tax Administration Act doesn’t deal with this issue specifically. 

We don’t have all the information, but it appears that this was not an audit (under section 41 of the Tax Administration Act).  It is more likely a verification (SARS refers to it as a review) and SARS is, under section 40 of the Act entitled to do so.  If a refund was due, it may also be a verification under section 190(2) of the Act.  This is relevant material is that SARS requested and the taxpayer should have furnished it to SARS – we accept that this was not done as the taxpayer or tax practitioner was not aware of this request. 

It is only where there was an audit that SARS, on the conclusion thereof, must provide the taxpayer with a document containing the outcome of the audit.  The taxpayer can then respond to that – see section 42 of the Act.  The Act requires this to happen before SARS issues an additional assessment (this often doesn’t happen in practice, but at least the taxpayer then gets notice). 

We agree, based on the obiter remark made by Judge Ponnan in the Pretoria East case, that SARS can’t just where the relevant material is not provided, issue an additional assessment.  They should at least have a follow-up request for the information. 

In our view, the only option available to the taxpayer is to object to the assessment.  We don’t believe that a section 93 request can be used.

 

2. Will there be expenses non-executive directors can claim for VAT?

Q: I would just like to enquire what expenses will qualify for the Input VAT calculation for Non-Executive Directors. Would it be expenses incurred in the production of their income?

A: The consequence of the binding general ruling is that the non-executive director is deemed to carry on an enterprise (with effect 1 June 2017).  It makes no other changes to the practice prevailing.  Consequently, the director, as a vendor, would be entitled to make a deduction of input tax based on the Act itself.  

The vendor then will have to be able to prove that the goods or services concerned were acquired by the vendor wholly (or partly) “for the purpose of consumption, use or supply in the course of making taxable supplies”. 

In the De Beers case Judge Southwoord, whilst agreeing with the minority view expressed by judges Navsa and Judge van Heerden dealt with this issue as follows:

“[48] To be entitled to deduct ‘input tax’ in the calculation of his VAT payable, a vendor must be registered in terms of the Act, must be carrying on an ‘enterprise’ and must have paid VAT on goods or services which the vendor acquired wholly for the purpose of consumption, use or supply in the course of supplying goods or services which are chargeable with tax under the provisions of s 7(1)(a) of the Act (i.e. goods or services supplied in the course or furtherance of the ‘enterprise’).”

Judge Southwood then continued as follows:

“[51] The primary question requires that there be clarity as to the nature of the ‘enterprise’ because the purpose of acquiring the services and whether they were consumed or utilized in making ‘taxable supplies’ can only be determined in relation to a particular ‘enterprise’. What the ‘enterprise’ consists of is a factual question. There must be a particular activity which complies with all the requirements in the definition.”

And concludes by saying: “The question to be answered therefore is whether NMR’s services were acquired for the purpose of making ‘taxable supplies’ in that ‘enterprise’.” 

Applying that to your request, one would say that the individual, as vendor, can make a deduction of the input tax relating to goods or services acquired for the purpose of consumption, use or supply in the course of making taxable supplies by way of the fees received as non-executive director.  If the goods or services are only partly so obtained, a portion of the input tax can be deducted. 

In terms of section 102(1) of the Tax Administration Act the taxpayer (the vendor in this instance) bears the burden of proving that an amount or item is deductible or may be set-off.  That is in addition to the documentary proof that is required in terms of section 16(2) of the Value-Added Tax Act.  We accept that the issue doesn’t relate to that, i.e. that the vendor will meet the section 16(2) requirements. 

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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