A taxpayer transports high-value goods. He needs to purchase a double-cab armoured vehicle as he needs 4 tactical officers in the front and back (including the driver). The floor space for passengers appears to be greater than 50%.
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. The definition excludes certain categories of vehicles not relevant for this discussion. VAT Interpretation Note 82 (“the IN”) The IN contains the Commissioner for SARS’ interpretation of what constitutes a motor car as defined in section 1(1) of 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 IN contains 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 the IN is: “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 A double cab light delivery vehicle is specifically included in the definition of “motor car” in section 1(1) of the VAT Act. As a general principle input tax on the acquisition of the double-cab light delivery vehicle may therefore not be claimed. With regards to the enquiry whether the vehicle has been constructed or converted for a purpose other than wholly or mainly for the carriage of passengers, the objective test contained in IN 82 must be applied. Based on the objective test the intended use of the vehicle must be measured on a linear basis (not cabin or floor space). If the use for transport of passengers is equal to or exceeds 50% of the total capacity, the vehicle will constitute a motor car as defined and an input tax deduction would be denied. The actual purpose for which the vehicle is used is irrelevant. If it constitutes a motor car as defined in section 1(1) of the VAT Act, no input tax deduction may be made. If any separate costs were incurred for enamouring the vehicle, VAT on such costs would be allowed as recoverable input tax.