25. SARS VAT Vendors Guide.pdf

Result since the supply of transport to fare paying

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Result: Since the supply of transport to fare-paying passengers in a bus is exempt, the VAT paid is wholly attributable to making exempt supplies. J’s Transport can therefore not deduct any VAT paid on the importation of the bus as input tax. Example 21 – Direct attribution vs. apportionment Facts: ABC Municipality rents a two-storey building under a single lease agreement which houses its public passenger transport and municipal rates divisions. The divisions occupy the ground floor and first floor of the building respectively. The divisions use the same software which has been implemented across all of the municipality’s different divisions and it receives a single telephone account each month for telephone usage for the building address. The municipality does not maintain separate cost accounts for each division. What are the VAT implications for ABC Municipality? Result: The public passenger transport division makes only exempt supplies and the municipal rates division makes only taxable supplies. Although the divisions are organised along the lines of wholly taxable and wholly non-taxable activities, ABC Municipality has not arranged its contracts or implemented accounting methods to specifically allocate costs incurred by each division. Furthermore – the lease agreement does not provide for separate rental amounts for each division; the cost of the computer software relates to the organisation as a whole; and the account for the use of telephones is not billed to each division separately. It follows that ABC Municipality would have to apportion all of its VAT incurred in relation to these expenses, since it cannot directly attribute the expenses wholly to taxable or wholly to exempt supplies. 61
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VAT 404 – Guide for Vendors Chapter 8 8.4.3 Apportionment methodology Once it has been established that the expense cannot be directly attributed wholly to taxable purposes or wholly to exempt or other non-taxable purposes, the second level of enquiry is to determine the portion of VAT which qualifies as input tax, based on the extent to which the intended use is for taxable purposes. The apportionment ratio must be determined by using an approved apportionment method so that only a fair and reasonable proportion of VAT is deducted as input tax. 80 The only pre-approved method which may be used to apportion VAT incurred for mixed purposes without specific prior written approval from the Commissioner is the turnover-based method. This method may be applied in the absence of a specific ruling obtained by the vendor to use another method. However, in circumstances where the turnover-based method is inappropriate because it produces an absurd result, proves impossible to use, or does not yield a fair approximation of the extent of taxable application of the enterprise’s VAT-inclusive expenses, the vendor must approach SARS to obtain approval to use an alternative method which yields a more accurate result. Should a specific
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