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FAQ - 22 July 2015

Wednesday, 22 July 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. A vendor on the payments basis retires from trading: what is the VAT impact? 

Q: A dentist retired at the end of March of this year. He is currently registered as a VAT vendor on the payments basis. Since he retired, he has still received a few payments from patients paying off for treatments and some payments from medical aids for past treatments. I would like to know at what point he must deregister as a VAT vendor, how to do so on e-filing and what the implications of deregistration will be. Also he keeps getting SARS queries regarding VAT returns submitted which reflect minimal output VAT, in responding thereto must we state that he has retired.

As far as I know upon deregistration, he will need to account for output VAT on the market value of his dental equipment and dental materials on hand. To this end, he sold a few items of dental equipment in respect of which he declared output VAT. The remaining items of dental equipment and materials are essentially worthless and have been scrapped.

A: The principle, refer to section 8(2) of the Value-Added Tax Act, is that "…where a person ceases to be a vendor, any goods (other than any goods in respect of the acquisition of which by the vendor a deduction of input tax under section 16(3) was denied in terms of section 17(2) or would have been denied if those sections had been applicable prior to the commencement date) or right capable of assignment, cession or surrender which in either case then forms part of the assets of his enterprise, shall be deemed to be supplied by him in the course of his enterprise immediately before he ceased to be a vendor, unless the enterprise is carried on by another person who in terms of section 53 is deemed to be a vendor…” 

In terms of section 23(3) "every vendor who ceases to carry on all enterprises shall notify the Commissioner of that fact within 21 days of the date of such cessation and the Commissioner shall cancel the registration of such vendor with effect from the last day of the tax period during which all such enterprises ceased, or from such other date as may be determined by the Commissioner.”  SARS confirms this in the VAT404 where it is stated that "cancellation of registration normally takes effect from the last day of the tax period in which the vendor ceases trading.” 

The VAT123 is used for this and efiling can’t be used to submit this. 

It is possible to argue on the strength of proviso (i) (to the definition of enterprise in section 1(1) – that anything done in connection with the … termination of any such enterprise or activity shall be deemed to be done in the course or furtherance of that enterprise or activity) that the notification to SARS is made in terms of section 24(4). 

In terms of section 24(5) SARS will cancel the vendor’s registration with effect from the last day of the tax period during which SARS is so satisfied (that the vendor ceased to carry on all enterprises).  SARS may also cancel the registration from another date determined by the SARS.

2. How do I register a previously sequestrated person for VAT? 

Q: How do I register a previously sequestrated person for VAT?

Our client was sequestrated last year, but has started doing business again in his own name and has now passed the R 1million turnover threshold. SARS says he is a risk to them, but they cannot tell me what to do or how we can go about to register him for VAT, which by law is compulsory.

A: We accept that the person (your client) has been rehabilitated – otherwise he would not have been allowed to start the business. 

Section 23(7)(d) allows that SARS, if "satisfied that any person who has applied for registration in terms of subsection (3) … should not be registered by reason of the fact that such person … has previously been registered as a vendor in respect of any enterprise, whether in terms of this Act or in terms of the Sales Tax Act, 1978 (Act No. 103 of 1978), but failed to perform his duties under either of the said Acts in relation to such enterprise … may refuse to register the said person as a vendor in terms of this Act and shall give written notice to that person of such refusal.” 

We therefore submit that SARS will only be entitled to refuse the registration where the application was brought under section 23(3). A section 23(1) application (above R1 million) is then not subject to this provision.  Section 32(1)(a)(i) provides that "any decision given in writing by the Commissioner in terms of section 23 (7) notifying that person of the Commissioner’s refusal to register that person in terms of this Act” is subject to objection and appeal. 

Section 23(4) merely refers to a person "eligible to be registered in terms of this Act” and therefore doesn’t introduce the same reason to SARS to refuse to register.   A refusal by SARS to register the person under section 23(1) doesn’t seem to be subject to objection, but that decision may well be taken on review. 

3. Does a non-resident pay CGT on local SA listed shares sold? 

Q: Does a non-resident pay CGT on local SA listed shares sold?

A: In terms of paragraph 2(1)(b) of the Eighth Schedule to the Income Tax Act the Schedule applies to the disposal on or after valuation date of the following assets of a person who is not a resident, namely—

(i) immovable property situated in the Republic (RSA) held by that person or any interest or right of whatever nature of that person to or in immovable property situated in the Republic (RSA); or

(ii) any asset which is attributable to a permanent establishment of that person in the Republic (RSA).

For purposes of subparagraph (1)(b)(i), an interest in immovable property situated in the RSA includes any equity shares held by a person in a company or ownership or the right to ownership of a person in any other entity or a vested interest of a person in any assets of any trust, if—

(a) 80% or more of the market value of those equity shares, ownership or right to ownership or vested interest, as the case may be, at the time of disposal thereof is attributable directly or indirectly to immovable property held otherwise than as trading stock; and

(b) in the case of a company or other entity, that person (whether alone or together with any connected person in relation to that person), directly or indirectly, holds at least 20% of the equity shares in that company or ownership or right to ownership of that other entity. 

So, if the value of the shares is not attributable to immovable property held by the company, as envisaged above, the disposal will not have capital gain consequences for the non-resident in the RSA.  It is unlikely that a double tax treaty would determine differently.  

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.  



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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