May a VAT vendor claim input tax on a Toyota Rush purchased from a dealership? The vehicle is referred to as a cross multi-purpose and SUV vehicle. The back seats are flattened and used as a delivery vehicle by the company.
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act 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. “Motor car” is defined in section 1(1) of the VAT Act as a motor car, station wagon, minibus, double cab light delivery vehicle and any other motor vehicle of a kind normally used on public roads, which has three or more wheels and is constructed or converted wholly or mainly for the carriage of passengers. VAT Interpretation Note 82 VAT Interpretation Note 82 contains the Commissioner for SARS’ interpretation of the ambit of what constitutes a car as defined in the VAT Act, as well as the test to apply whether a vehicle is constructed wholly or mainly for the purpose of carrying passengers. The Commissioner for SARS devised an objective test to determine whether a vehicle has been constructed or converted wholly or mainly for the purpose of carrying passengers. The test contained in Interpretation Note 82 is as follows: “The objective test requires a one dimensional measurement of the length of the area designed for the carriage of passengers in relation to the dedicated loading space in a vehicle. In applying the objective test, one must determine which area measures more in length; the passenger area or the dedicated loading space. The engine area should be disregarded for the purposes of this determination. If the passenger area measures more than the dedicated loading space, the vehicle is constructed mainly (that is, more than 50%) for the carriage of passengers and will thus constitute a “motor car” as defined. The dedicated loading space is the area that is constructed solely for a purpose other than the carriage of passengers. There are vehicles constructed with an area within the vehicle that serves a dual purpose of providing both loading and passenger space (that is, fold-up seats that provide a loading area when folded up). Due to the fact that this area can be used to accommodate passengers, the entire area will be regarded as a space designed for the seating of passengers.”
The Law In Tax Case 1345 the Court dealt with the application of the objective test in the context of the actual use to which the vehicle is put. It held the following in this regard at paragraph 18. “The onus is on the appellant to show that the vehicle is not wholly or mainly constructed for the carriage of passengers. The appellant in this case has not discharged this onus. Much of the submissions made on its behalf attempted to show that the vehicle was used to transport goods as opposed to passengers. Mr J submitted further that the crew cab looked like a total load area and was conducive for carrying large goods. He confirmed that there were seats behind the front seat, which he referred to as ‘utilitarian’. This submission in our view strengthens the respondent’s view more than it assists the appellant. The usefulness presented by the design of the seats and the styling thereof as well as the alleged discomfort that passengers who use the seats might experience than in an ordinary motor car are all inconsequential. Those factors do not detract from the fact that the vehicle was constructed mainly for carriage of passengers for the purposes of the definition of a motor car in the VAT Act, if one applies the objective test suggested in cases referred above read with SARS Interpretation Note 82. Accordingly, if the area concerned can be used to load passengers, it would be regarded as a space for the seating of passengers regardless of it being used to carry cargo. This point was emphasised in ITC 1693 as indicated supra, that the fact that the back seats may not be as comfortable as those in a normal vehicle did not alter the purpose for which the motor vehicle was designed.” Application of the principles The Toyota Rush has been constructed almost exclusively for the transport of passengers and accordingly would constitute a “motor car” as defined in section 1(1) of the VAT Act. No input tax deduction may accordingly be claimed in respect of the acquisition of the vehicle. The fact that the vehicle is physically used to deliver company goods, is irrelevant (see extract form Tax Case 1345 above). Summary The VAT vendor will not be entitled to an input tax deduction with regards to the acquisition of the vehicle.