Print Page
News & Press: VAT

VAT Treatment of Demonstration Motor Vehicles

Tuesday, 16 April 2013   (2 Comments)
Posted by: Author: Carmen Moss-Holdstock
Share |

Source: Carmen Moss-Holdstock

When a car dealership acquires a motor vehicle purely for the purposes of demonstration use, the question that arises is whether it constitutes a taxable supply for purposes of Value-Added Tax (VAT).

Section 17(2)(c)(ii) of the Value Added Tax Act, No 89 of 1991 (Act) provides that "a motor car acquired by such vendor for demonstration purposes or for temporary use prior to a taxable supply by such vendor shall be deemed to be acquired exclusively for the purpose of making a taxable supply."

Can one interpret the relevant section to read that a motor car acquired by a dealer for demonstration purposes will always be deemed to be acquired exclusively for the purposes of making a taxable supply or should the section be interpreted to mean that the input tax credit can only be claimed to the extent that the motor vehicle has been acquired by the vendor for demonstration purposes prior to a taxable supply by the vendor? In the latter case, one would think that the dealer will have to sell the motor vehicle to make a taxable supply. If the first-mentioned interpretation has merit, then the only requirement is that the dealer should have acquired the motor car for demonstration purposes.

Even in the context of the first interpretation, reference is made to a motor car that is acquired by the vendor. The question is whether the word 'acquired' also includes the renting of a vehicle as opposed 
to acquiring ownership. In CIR v Freddies Consolidated Mines Ltd 21 SATC 132 it was indicated that the word 'acquired' should be construed as meaning "the acquisition of a right to acquire the ownership of property." Similarly, in SIR v Wispeco Housing (Pty) Ltd 35 SATC 14 it was indicated that the word 'acquired' does not mean the acquisition of actual ownership of the property, but the 
acquisition of the right to acquire the ownership of property at such a time as may be designated in the relevant contract. A narrower approach was adopted in Transvaal Investment Co Ltd v Springs 
Municipality 1922 AD 337 where it was indicated that the word 'acquire' connotes ownership, that is the acquisition of dominium.

Given the fact that the courts have adopted a wider meaning to the word 'acquire', it seems that, even if the first interpretation is preferred, ie that the only requirement is that the vendor should have acquired the motor car for demonstration purposes, whether or not prior to a taxable supply, the requirement seems to suggest that the motor car should have been acquired by the dealer. An interesting scenario that could arise is where a lease agreement is entered into, whether it can be argued that the motor car would not have been acquired even though the use of the motor car would have been transferred to the dealer. In other words, on either interpretation, it would seem that the dealer should have 'acquired' the motor vehicle and only an option to acquire the motor vehicle would not be sufficient. It may be possible to argue that a motor vehicle acquired for demonstration purposes could qualify, whether or not it is prior to a taxable supply but such argument is not without risk. It would seem that the dragon is in the detail.


André Anderson says...
Posted Tuesday, 30 April 2013
I agree with Morne, but as you rightly point out "the dragon is in the detail"
Morne T. Kruger says...
Posted Tuesday, 23 April 2013
This makes for interesting reading, but does not come to a conclusion. Is it possible to get a definitive answer on the topic?



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

  • Tax Practitioner Registration Requirements & FAQ's
  • Rate Our Service

    Membership Management Software Powered by YourMembership  ::  Legal