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FAQ - 10 August 2016

Wednesday, 10 August 2016   (0 Comments)
Posted by: Author: SAIT Technical
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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 hospital. 

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? 

Q: Taxpayer 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. 



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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