[Question] Deemed Input / Transfer Duty

[tax$$$]

Hi everyone.

If an sales agreement states that the fixed property will be transferred at the end of a 5 year period with equal annual installments, does the company qualify for the deemed input (seller is non-vendor) on the annual payments or should he wait until the property is transferred and the transferred duty is paid?

In normal circumstances VAT would be claimed on the annual payments. I am unsure how to handle this, as the transfer duty will only be paid after the 5 year period.

If further information is required please let me know.

Thank you

[CLIVE-TRIANGLE]

You need to wait for transfer and deduct the transfer duty as input vat.

[tax$$$]

Hi Clive.

Thank you, but can you maybe expand on that?

When you only take the VAT Act, the supply will be that of second hand goods of which a deemed input can be claimed (Sec 16(3)). The time of supply would be the earliest of registration or payment date (Sec 9(3)(d).

As with second hand goods, there are no corresponding output VAT if sold by non-vendor, but a deemed input may be claimed, limited to each deferred payment made. For me it feels the same for fixed property, because the deemed input will, after 10 January 2012, be more than the actual transfer duty that was paid (the corresponding "output" will be less).

It stands to reason then that a deemed input can be claimed whether or not transfer duty has been paid.

If you can maybe refer me to some guide or legislation, that would be much appreciated.

Thank you

[CLIVE-TRIANGLE]

Hi

There are two issues, as far as I can determine.

The first is the provisions relating to 2nd hand goods. These provisions include fixed property. This from SAICA:

Claiming the input tax deduction

There are many conditions relating to a deduction of notional input tax. For example:
in respect of the acquisition of immovable property, the claim is limited to the amount of transfer duty actually paid;
in the case of the acquisition with payment over a period, the claim can only be made as and when payments are made on account of the purchase price, etc.
Unfortunately, this provision has led to abuse and, to counteract the abuse, special records have to be created and maintained by purchasers who claim notional VAT input tax.

Records

In order for a vendor to be entitled to a notional input tax deduction, the following records must be retained:
the name and address of the person who sold the goods;
as verification of his name, his identity number, or if the purchase is R1000 or more, a photocopy of his identity document;
where the seller is not a natural person, the company's or close corporation's name and legally allocated registration number with reference to its business letterhead or other similar document and the identity number of its representative. Where the supply is R1000 or more, photocopies of such letterhead or other documentation indicating the name and registration number as well as a photocopy of the representative's identity document;
the date of purchase;
a description of the goods;
the quantity, mass or volume of the goods;
the purchase price;
proof of payment of the purchase price.

Recent amendments

On 31 March 2004, the Commissioner: SARS released a press statement prescribing further requirements in order to assist vendors to comply with the provisions with regards to the retention of records.

With effect from 1 May 2004, all vendors claiming a notional input tax credit in respect of the acquisition of second-hand goods or repossessed goods are required to complete a VAT 264 form and retain such form for a period of 5 years from the date of sale.

The VAT 264 form is published on the SARS website http://www.sars.gov.za and can be accessed under the VAT section of the menu under ‘Forms’.

The introduction of the VAT 264 form will assist SARS in its attempts to curb the high incidence of widespread non-compliance relating to second-hand and repossessed goods, more especially in the motor car industry.

The VAT 264 form is designed in a user-friendly manner and will assist VAT vendors to comply with the requirements stipulated in the VAT Act.

Secondly, PRACTICE NOTE 4 OF 1991 - VAT: TIME OF SUPPLY,
Para 3 SALE OF FIXED PROPERTY
In terms of Section 9 (3)(d) of the Act, a sale of fixed property is deemed to take place on the earliest of -
(i) 6 months after the date on which the sale is entered into (or the date on which an underlying option or right of pre-emption to acquire the property was exercised); or
(ii) the date of registration of transfer of ownership; or
(iii) the date on which payment is made in respect of the purchase price
3.1 For the purposes of (i) above, the date on which the sale is entered into or the option or right is exercised, will be regarded as the date of last signature by the parties to a bona fide agreement. This will apply even if the agreement is subject to a number of of suspensive conditions which are only fulfilled at a later date.
3.2 The rule in 3.1 above will also apply for the purposes of section 78(9(a) of the Act which deems a sale of fixed property not to be a taxable supply if the agreement is concluded before 30 September 1991.
3.3 For the purposes of (iii) above, a deposit (whether refundable or not) will not be considered as 'any payment' unless or untill the deposit is released and applied as part payment of the purchase price or is forfeited by the purchaser.

Despite the favourable wording of the Practice Note, the fact that the input credit is "limited to the amount of transfer duty actually paid" is why I answered as I did; as in my experience it is how SARS has applied it.

[CLIVE-TRIANGLE]

Section 16(3)(a)(ii) and
Section 16(3)(b)(i)

Specifically require that the transfer duty be paid prior to claiming the input tax.

[tax$$$]

Thank you very much, thats exactly what I needed. You are aware though that the notional input is no longer limited to the transfer duty, except when there is a change in use from property owned prior to this amendment.

Thanks again!

[CLIVE-TRIANGLE]

No I'm not aware of that. Can you perhaps give me a reference?

[tax$$$]

I'm struggling to find anything on SARS's website (big surprise ...). The best I can offer: http://www.fasset.org.za/downloads/b...e_Handbook.pdf , has a copy of the tax updates for 2012. As mentioned there the Definition of 'Input Tax' and Sec 16(3) has been amended.

Hope this helps.

[CLIVE-TRIANGLE]

Found it. Thank you very much!