[FAQ] Can a registered VAT vendor claim input VAT on a bus that they purchased to transport employees to and from work?

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[FAQ] Can a registered VAT vendor claim input VAT on a bus that they purchased to transport employees to and from work?

• 16 July 2020
• Christo Theron

Background

My client is a registered VAT vendor. The company purchased a 35-seater bus from a registered VAT vendor for the purpose of transporting its employees to and from work.

Can the company claim an input tax deduction on the bus purchased?

Answer

The VAT Act

General input tax deduction sections

Section 16(3)(a)(i) of the VAT Act allows a vendor a deduction of the amounts of input tax against output tax attributable to a tax period, being input tax in respect of supplies of goods and services …. made to the vendor during the tax period.

Paragraph (a) of the definition of “input tax” in section 1(1) of the VAT Act defines input tax 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 supplies of exempt passenger transport services

Section 12(g) of the VAT Act exempts from VAT the supply by any person in the course of a transport business of any services comprising the transport by that person in a vehicle operated by him of fare-paying passengers and their personal effects by road or railway. 

Sections dealing with input tax on 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.

“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 any vehicle suitable for carrying more than 16 persons. 

Application of the principles

A 35 seater bus does not constitute a motor car as defined in section 1(1) of the VAT Act. The only issue for consideration is whether it could be held that the bus is being used to supply transport to fare-paying passengers. 

If the transport is provided to the employees free of charge, the bus would not be used to supply VAT exempt transport to fare-paying passengers, and the VAT vendor will be entitled to an input tax deduction in respect of the acquisition of the bus. 

If the transport is provided to the employees for a fee, the bus would be used to supply VAT exempt transport to fare-paying passengers, and the VAT vendor will not be entitled to an input tax deduction in respect of the acquisition of the bus.

Webinar Commentary

Further commentary can be viewed on our n-demand webinar on General Input Tax Deductions.

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