Can a taxpayer claim the VAT on the following vehicle: JEEP GRAND CHEROKEE3.0L V6 CRD?
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. This includes a supply by any means, including a supply in terms of a rental or lease agreement. “Motor car” is defined in section 1(1) of the VAT Act as including 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.” Paragraph 3.2 (C) of the Interpretation Note lists “purpose for which it was acquired” as “”Factors considered to be irrelevant and not influencing the aforementioned objective test”. (Our underlining)
The law In the judgment of VAT Case 1345 the tax court held the following: “[Paragraph 17] The issue of whether the appellant uses the vehicle to carry goods is not in dispute. No evidence was led as to how the vehicle was sold and for what purpose by the manufacturer. The purpose for which the vehicle was purchased is however irrelevant, so was its use.” (Our underlining) Application of the principles The Jeep Grand Cherokee 3.0L VR CRD has been designed primarily for the transport of passengers. The application of the objective test contained in Interpretation Note 82 will confirm this conclusion. The actual use to which the vehicle is put or the purpose for which the vehicle has been acquired is irrelevant with regards to the treatment of VAT incurred on the acquisition of the vehicle. The only enquiry is whether the vehicle constitutes a “motor car” as defined in the VAT Act, and if so, whether any of the exceptions contained in section 17(2)(c) of the VAT Act applies to the relevant motor car. In the present case the vehicle constitutes a motor car as defined in section 1(1) of the VAT Act and none of the exceptions contained in section 17(2)(c) of the VAT Act applies. Input tax incurred on the acquisition of the motor car cannot therefore be claimed as recoverable input tax. Summary Based on the requirements of the VAT Act and the legal precedent we are of the view that the VAT vendor would not be entitled to an input tax deduction in respect of the VAT incurred on the acquisition of the Jeep Grand Cherokee 3.0L VR CRD. The fact that the vehicle is a 4x4 is irrelevant.