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When the Minister of Finance announced in the 2016 budget speech that the ability to claim input tax credits within 5 years will be revisited, taxpayers and tax practitioners alike waited with great anticipation to see if the proposal found its way into the draft bills so as to comment on why this should most definitely not happen.

When the 2016 Draft Tax Administration Laws Amendment Bill was published for public comment, the Draft Memorandum of Objects on that draft bill indicated that:

“It is proposed that an input tax deduction be limited in certain instances to the tax period in which the time of supply occurred.”

However, most stakeholders were left scratching their heads as the actual draft bill proposed no amendments to the proviso to section 16(3) of the VAT Act and which allows the 5 year time period to claim input taxes. The only proposed changes in the actual draft bill was to reinsert section 44 into the VAT Act.

The confusion was however eventually put to rest with the response document from National Treasury and SARS in which the following statement was made:

“The Memorandum of Objects will be amplified to clarify that the proposed amendment does not limit input tax claims to the tax period in which the supply occurred…”

Accordingly, as it stands at the moment the 5 year period to claim input tax is not being changed.

In the case of VAT 1247:  XYZ Company (Pty) Ltd v The Commissioner for The South African Revenue Service, the court was faced with interpreting section 22(3) of the VAT Act, notably, in relation to a period before 22(3A) was introduced. Section 22(3) of the VAT Act in essence requires a person who has claimed an input tax deduction to make an output VAT adjustment if the invoice on which the input was claimed has not been settled within a period of 12 months.

The facts of the case are briefly that a supply was made from company A to Company B. Company B proceeded to claim an input tax credit back from SARS and once refunded, paid the Vat portion for the supply to Company A. Company A subsequently paid the VAT on the supply across to SARS and credited the loan account in respect of the invoice and debited a long term liability.  The long term liability was not settled by Company B within 12 months.

The taxpayer argued that crediting the loan account of Company A constituted payment of the invoice and accordingly, section 22(3) should not find application and in addition, there was no prejudice to SARS. SARS, in turn, argued that the debt still existed and was not settled within 12 months and that section 22(3) should apply.

The court in arriving at its decision that section 22(3) does not find application in casu stated that the purpose of section 22(3), per the Explanatory Memorandum to the amendment bill that introduced same, was to prevent abuse of the irrecoverable debt provisions in section 22 that resulted in prejudice to SARS. As there is no prejudice for SARS in this case, the court ruled that section 22(3) does not find application.

It will be interesting to see if SARS appeals this decision as taxpayers may be tempted to henceforth merely move liabilities around on the balance sheet to prevent the application of 22(3). Such temptation should however preferably be resisted without consulting an expert as the judgment is fact specific and the intention of Company A and Company B ostensibly played a vital role in the court’s conclusion together with the fact that there was no prejudice to SARS.

The issue is however mostly moot in relation to group transactions where such transactions fall within the carve out created for same in section 22(3A), introduced with effect from 10 January 2012.

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-24%20-%20BPR239%20Cash%20Contributions%20made%20to%20a%20special%20purpose%20vehicle.pdf” target=”” size=”small” style=”black” icon=”icon: cloud-download” popup=”” title=””]Download: Irrecoverable debts and VAT[/button]

 

The guide provides general guidelines to determine the medical fees tax credit and additional medical aid tax credit for income tax purposes. The guide includes the relevant definitions and formulas as well as detailed examples for purposes of the medical fees tax credit and additional medical aid tax credit calculation.

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“Whether the delivery of food orders to the taxpayer’s customers constitute a service supplied by it for consideration in the course, or furtherance, of its enterprise (and therefore whether same is within ambit of Value Added Tax Act, No. 89 of 1991). If so,  whether VAT falls to be paid on taxpayer’s delivery charges or whether same should be borne by taxpayer’s deliverers/ drivers (independent contractors).”

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This ruling determines the income tax consequences resulting from cash contributions to be made by the applicant to a special purpose vehicle (separate property company) established to provide housing for the employees of the joint venture and the group of companies of which the Applicant forms part. The separate property company (SPV) will obtain funding and provide housing to mine workers, in order for the company to apply for a renewal of its mining rights.

Upon completion of the housing projects undertaken by separate property company, all surplus cash and profits shall be applied to programmes that have as its object the improvement of the social conditions of the communities in or around the area in which the Applicant carries on its business.

Click on the button below to view and download the SARS Binding Private Ruling: BPR 239 Document:

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-24%20-%20BPR239%20Cash%20Contributions%20made%20to%20a%20special%20purpose%20vehicle.pdf” target=”” size=”small” style=”black” icon=”” popup=”” title=””]BINDING PRIVATE RULING: BPR 239[/button]