A taxpayer is situated in the Western Cape. The taxpayer installed a machine in Kwa-Zulu Natal. Please advise on the following: 1. If the taxpayer hires a car for business purposes, is he entitled to claim the VAT on the insurance taken out on the vehicle
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act Sections dealing with deductible input tax Section 16(3)(a)(i) of the VAT Act allows a vendor to make a deduction of input tax in respect of supplies of goods and services made to the vendor during a tax period. “Input tax” is defined in section 1(1) of the VAT Act as, amongst others, VAT charged under section 7 of the VAT Act and payable in terms of that section by a supplier on the supply of goods or services made by the supplier to the vendor, to the extent that the vendor has acquired the goods or services for the purpose of consumption, use or supply in the course of making taxable supplies. Sections dealing with input tax on the supply of motor cars Section 17(2)(c) of the VAT Act denies an input tax deduction in respect of the supply of a motor car to a vendor. Sections dealing with input tax on entertainment Section 17(2)(a) of the VAT Act denies an input tax deduction in respect of goods or services acquired by a vendor to the extent that the goods or services are acquired for the purpose of entertainment. “Entertainment” is defined in section 1(1) of the VAT Act as the provision of any food, beverages, accommodation, entertainment, amusement, recreation or hospitality of any kind by a vendor whether directly or indirectly in connection with the enterprise carried on by him. Proviso (ii) to section 17(2)(a) of the VAT Act determines that the prohibition on deducting input tax on entertainment does not apply where the goods or services are acquired by the vendor for the consumption or enjoyment by, amongst others, the vendor or an employee or office holder of the vendor or a self-employed natural person. The exclusion is limited to the supply of a meal, refreshment or accommodation in respect of any night that the vendor is by reason of the vendor’s enterprise, or in the case of an employee of the vendor or a self-employed natural person, is by reason of the duties of his or her employment, obliged to spend away from his usual place of residence and usual working place. A “self- employed natural person” is essentially an independent contractor as envisaged in the Fourth Schedule to the Income Tax Act.
The SARS VAT Guide on Entertainment, Accommodation and Catering (VAT 411) Paragraph 4.3.3 of the Guide states the following: “Proviso (ii) to section 17(2)(a) provides for a situation where employees incur personal subsistence expenditure on behalf of the employer in connection with their employment. If the actual expenditure is reimbursed to the employee, or if it is borne directly by the employer, input tax may be deducted on expenditure relating to hotel accommodation, meals and beverages provided to the employee whilst away from their usual place of residence and usual working place.” Paragraph 10.9 of the SARS guide deals with VAT on catering for film production crews. It states the following: “The question arises as to whether input tax may be deducted on expenses incurred in regard to catering provided for crew members, clients and production staff during the production of an advertisement, television programme or film if a film production company (vendor) shoots an advertisement, television programme or film in the Republic. In terms of proviso (ii) to section 17(2)(a), a vendor is entitled to an input tax deduction where the goods or services are acquired in respect of the personal subsistence of employees or office holders, who, by reason of their duties, are obliged to spend at least one night away from their usual place of residence and usual working-place. … The film production company is entitled to an input tax deduction in respect of personal subsistence incurred by local crew members who are away from their usual place of residence and their usual working-place whilst involved in the production of a film or making of an advertisement on location.” Application of the principles Input tax on motor car insurance The supply of insurance together with a rental car represents a supply of services separate from the supply of the rental car. The two categories of supplies must accordingly be considered separately for VAT purposes. VAT charged by the motor car rental company in respect of the insurance of the motor car rented to the client represents normal input tax incurred on the supply of services to the client (i.e. not for the supply of the car). Input tax may accordingly be claimed. Input tax on meals and refreshments Input tax on meals and refreshments consumed by employees while away overnight from their normal place of work and residence by reason of their duties of employment may be claimed in full (i.e. all meals and refreshments).