A Non Profit Company (“NPC”) operates a recreational centre. They charge for the use of the facilities. The facilities are Government owned. The NPC pays no rental for the facilities but is responsible for the upkeep, maintenance and all other costs.
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services made by a vendor in the course or furtherance of the VAT enterprise carried on by the vendor. VAT is imposed at the standard rate of (currently 15%), unless the supply qualifies to be supplied at the zero-rate in terms of section 11 of the VAT Act or is exempt from VAT in terms of section 12 of the VAT Act. Section 12(b) of the VAT Act determines that the supply by any association not for gain of donated goods or services or any other goods made or manufactured by such association if at least 80% of the value of the materials used in making or manufacturing such other goods consists of donated goods, constitutes exempt supplies for VAT purposes. Section 8(11) of the VAT Act determines that a supply of the use or the right to use or the grant of permission to use any goods under any rental agreement, instalment credit agreement, charter party, agreement for chartering or any other agreement under which such use or permission to use is granted, is deemed to be a supply of goods. Sections dealing with registration Section 23(1)(a) of the VAT Act determines that every person who carries on a VAT enterprise and is not registered as a VAT vendor becomes liable to be registered at the end of any month where the total value of taxable supplies made by that person in the period of 12 months ending at the end of that month in the course of carrying on all enterprises has exceeded R1 million. Application of the principles.
Kindly note that the rules discussed below only apply to “associations not for gain” as defined in section 1(1) of the VAT Act. Generally speaking, NPOs would qualify as associations not for gain as envisaged in the VAT Act, but this cannot be assumed as a given. The point of departure is accordingly to determine whether the NPC qualifies as an association not for gain as envisaged in the VAT Act. An association not for gain is required to register as a VAT vendor if its annual value of taxable supplies has exceeded R1 million in any 12-month period. The association may however apply to SARS that the R1 million registration threshold must be applied in respect of each branch of or division of the association. If none of the branches or divisions makes taxable supplies with a value exceeding R1 million, the association would not be required to register as a VAT vendor. SARS’ approval is required if this course of action is taken. In the present enquiry the critical issue for consideration is whether the use of the facilities is granted to the NPC in terms of an agreement that provides the NPC with the right of use of the facilities. From the information supplied this would appear to be the case. This being the case, the right of use would constitute a supply of goods by the Government to the NPC and should constitute donated goods, no consideration being charged for the supply. If the same goods (the use thereof) are on-supplied to the final users thereof for a fee, the fee should be exempt from VAT in terms of section 12(b) of the VAT Act, being the supply of donated goods or services by an association not for gain. Should the supply to the ultimate users differ from the use rights donated to the NPC, the supplies would not be exempt from VAT in terms of section 12(b) of the VAT Act and the NPC would be required to register as a VAT vendor. It is clear from the above that this is a very technical issue and can only be decided based on the specific facts of the case and having regard to the manner in which the use rights are acquired and physically supplied to third parties. We recommend that you either obtain a formal legal opinion on the interpretation of the relevant sections or a formal ruling from SARS to clarify their interpretation.