25. SARS VAT Vendors Guide.pdf

No adjustment is applicable where the adjusted cost

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No adjustment is applicable where – the adjusted cost is less than R40 000 (excluding VAT); or the vendor is a public authority or constitutional institution and the capital goods or services were acquired before 1 April 2005; or the vendor is a municipality and the capital goods or services were acquired before 1 July 2006. Example 28 – Increase in extent of taxable use of capital goods or services Facts: Ms C (registered VAT vendor) owns a double-storey building situated in Cape Town. The building is used for mixed purposes, in that it has 3 shops on the ground floor used to make taxable supplies and 4 residential apartments on the first floor used to make exempt supplies. The building has been applied as such from the commencement of the business in March 2007 when the building was acquired for R1 368 000 (inclusive of VAT). Ms C elected to use the standard turnover-based method of apportionment and determined that she derived 60% of her income from taxable supplies and 40% from exempt supplies. Therefore, in the April 2007 tax period, she deducted input tax of R100 800 (14 / 114 × R1 368 000 × 60%) in respect of the building. At the end of February 2016 (being the last day of her year of assessment), Ms C determines that the nature of her business has changed significantly and that her income now comprises of 80% taxable supplies 20% exempt supplies. At the end of that month the adjusted cost and OMV of the building is R1 368 000 and R2 280 000, respectively. 96 Section 18(5). 77
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VAT 404 – Guide for Vendors Chapter 9 Result: Because the increase in the extent of the taxable use of the capital goods or services exceeds 10%, Ms C is entitled to an input tax adjustment in the tax period ending on February 2016. The adjustment required to be made by Ms C to take account of the decrease in the extent of taxable use of the building and computer system is determined by the formula: A × B × (C – D) Where: A represents the tax fraction, that is, 14 / 114 B represents the lesser of: (i) the adjusted cost of the building namely, R1 368 000; or (ii) the OMV of the building namely, R2 280 000 C represents the extent of taxable use of the building during the current 12-month period (80%) D represents the extent of the taxable use of the building at the time of acquisition or in the prior 12-month period (60%) Ms C’s calculation will be: Building : 14 / 114 × R1 368 000 × (80% – 60%) = R33 600 . Ms C may deduct an additional R33 600 in the February 2016 VAT return under field 18. 9.5.6 Subsequent sale or disposal of goods or services partly applied for taxable supplies 97 A vendor that acquires goods or services which are used partly for making taxable supplies and thereafter supplies those same goods or services in the course of the enterprise, is required to account for output tax on the full consideration for the supply. In order to eliminate double taxation, the vendor is entitled in these circumstances to deduct the portion of VAT that was originally disallowed on the acquisition of the goods or services.
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