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FAQ - 9 October 2014

Wednesday, 08 October 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author:  SAIT Technical

1. Claiming transfer duty on property before registering for VAT

Q: I have a client who has just formed a new company. The company seeks to purchase a commercial property and we want to register it for VAT in order to claim the transfer duty because the seller is not a VAT vendor. SARS is stating that we can only register if we have lease agreements in place for the tenants. The lease agreements will however only be applicable once the transfer has taken place and renovations have been made. Will the transfer duty still be claimable even though payment will be on a date prior to the VAT registration if we have to wait for the lease commencement date?

A: We accept that the application to register is not made in terms of section 23(1) of the VAT Act, but the guidance will not materially differ.  Remember that the input tax (or a portion thereof) may only be deducted to the extent that payment has been made – see section 16(3)(a)(ii)(bb). We further accept that the intended use of the property is to make taxable supplies.  

Please note that the input tax in this instance (the potential deduction) is not the transfer duty, but rather "the tax fraction … 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… of any second-hand goods situated in the RSA” - in terms of the definition of input tax in section 1(1) of the Value-Added Tax Act. 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.  

The goods (or services) were acquired after incorporation, but before the effective date of registration as a vendor. The basis for a deduction of the taxes relating to supplies prior to the VAT registration, is found in section 18(4) and the deduction is therefore made in terms of section 16(3)(f). The deduction in terms of section 16(3) is an amount determined in accordance with the formula provided in section 18(4) which uses the adjusted cost or the open market value.  

Please also note that no input tax may be deducted if the vendor does not have the required documentation to substantiate the deduction – see item C in Annexure A of Interpretation Note 49.

2. The foreign service income exemption for crew members of a ship

Q: Though the taxpayer, who is a marine engineer, met all other requirements of the section 10(1)(o)(ii) income tax exemption, he did not spend more than 60 continuous days in a 12 month period outside South Africa. I informed my client of this and he informed me that because he is a marine engineer, he does not have to meet the requirement of 60 continuous days if he met the "183 day” requirement.

My view is that he fell short of one of the requirements of section 10(1)(o)(ii) and for this reason his income is not exempt. I am not sure on the legitimacy of the taxpayer’s claim.

A: Our guidance assumes that the client doesn’t work on a South African ship (section 12Q).  The remuneration will then only be exempt if the section 10(1)(o)(i) exemption applies.  

Section 10(1)(i) exempts from normal tax any form of remuneration as defined in paragraph 1 of the Fourth Schedule, derived by any person as an officer or crew member of a ship engaged  

aa) in the international transportation for reward of passengers or goods; or

bb) in the prospecting exploration or mining (including surveys and other work of a similar nature) for any minerals (including natural oils) from the seabed outside the Republic, where such officer or crew member is employed on board such ship solely for the purposes of the 'passage' of such ship, as defined in the Marine Traffic Act, 1981 (Act No. 2 of 1981),

if such person was outside the Republic for a period or periods exceeding 183 full days in aggregate during the year of assessment.

The income of a member of a crew will be exempt only if he was on board the ship for a specific purpose only. Interpretation note 34 provides no definition of a crew member, but we submit that the engineer would be an officer or crew member. Furthermore, in an unreported tax case it was stated that the section 10(1)(i) exemption will apply "if the recipient was on board the ship solely for purposes of navigating it.” 

3. Whether it is compulsory to use the annual average exchange rates for converting income denominated in a foreign currency to rands.

Q: I have a client who worked overseas and I need to declare the income earned. Am I forced to use annual average exchange rates or may I use the monthly exchange rates for the months when he was paid?

A: Section 25D(3) of the Income Tax Act provides that a natural person may elect that all amounts received by or accrued to, or expenditure or losses incurred by that person in any currency other than the currency of the RSA, be translated to the currency of the RSA by applying the average exchange rate for the relevant year of assessment.  

You are therefore not forced to use the average exchange rate for the relevant year of assessment.  

Note that section 25D(1) provides that the foreign currency amounts may be translated to Rands by applying the spot rate on the date on which that amount was so received or accrued or expenditure or loss was so incurred. In terms of the definition in section 1(1) ‘spot rate’ means the appropriate quoted exchange rate at a specific time by any authorised dealer in foreign exchange for the delivery of currency.  The ‘monthly exchange rates’ are therefore not spot rates.  

Table B (available on the SARS web) provides the average monthly exchange rates which can be used.



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.

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