above 41 5.2.5 Fixed property

Goods consisting of fixed property or any real right therein are deemed to be supplied upon registration of transfer of the property in a deeds registry, or the date upon which any payment is made in respect of the consideration (whichever occurs first). Note that a “deposit” is not considered to be “any payment” until the seller is able to apply that payment as consideration for the supply. Similarly, a payment that is held in a trust by an estate agent or attorney does not constitute payment made, as the seller cannot apply the amount against the outstanding debt at that time. Also refer to the VAT 409 – Guide for Fixed Property and Construction.

5.2.6 Fringe benefits

The cash equivalent of a fringe benefit under the Fourth Schedule to the Income Tax Act is required to be included in the remuneration of the employee who has received that benefit or advantage. The time of supply is the end of the month in which such benefit is required to be included as remuneration. In cases where the cash equivalent is not required to be included monthly or weekly in the amount of remuneration, the time of supply is the last day of assessment of the employee under the said Act.

5.2.7 Lay-by agreements

The supply of goods under a lay-by agreement is only deemed to take place when the goods are delivered. A lay-by agreement is one where the consideration for the supply is R10 000 or less and the supply is reserved by the payment of a deposit. In these types of transactions, delivery usually only takes place when the full purchase price, or agreed portion thereof, is paid. The supplier is therefore not liable to account for any VAT on the amount received as a deposit unless and until delivery has taken place.

Should a lay-by sale be cancelled or terminated for any reason, any deposit payment retained by the vendor or any amount of the consideration paid (or which is recoverable) is regarded as consideration for a taxable supply of services by the vendor. In such cases, the vendor must account for output tax on the total amount retained in the tax period during which the sale was cancelled or terminated. 5.2.8 Machines, meters and other devices

A special time of supply rule applies when supplies are made via machines, meters and other devices which accept payment by way of coins, tokens, paper money or cards. Examples include –

• vending machines such as those that dispense snacks, cool drinks and cigarettes;

• arcade video games;

• pool tables;

• parking meters; and

• public telephones.

From 1 January 2013, the definition of an ICA was extended to include any amount determined with reference to the time value of money and applies to all goods supplied after that date.

The time of supply rule for the vendor making the supply is the time that the coins, tokens, paper money or cards are removed from the machine, meter or device. In the case of payment in any other form being accepted by the machine, meter or device (for example, debit or credit card), the time of supply is the time that the payment was received by the supplier. The time of supply for the recipient is when the coin, token, paper money or card is inserted into the machine, meter or device or when payment is tendered through other means.

5.2.9 Betting transactions

A betting transaction is when one person places a sum of money at risk with another person who accepts the money as a bet, based upon the outcome of a race, competition or other event or occurrence where the outcome is uncertain. The person accepting the bet is deemed to supply a service to the person placing the bet. A vendor accepting bets in the course or furtherance of an enterprise must account for output tax on the consideration received in respect of all betting transactions for which payment has actually been received in the tax period concerned. This rule applies whether the vendor accounts for VAT on the invoice or payments basis. Refer to Interpretation Note 41 (Issue 3) dated 31 March 2014 “Application of the VAT Act to the Gambling Industry” for more information.

5.3

VALUE OF SUPPLY

The consideration for a supply will normally be equal to the amount of money which is payable as the price charged for the supply. The consideration for a supply is represented by the value plus the VAT charged. In cases where the consideration is not in money, the consideration will be the open market value thereof. Note that the open market value includes the VAT element. Specific value of supply rules apply to certain transactions. Note that although section 10 of the VAT Act is titled “Value of supply”, some of the subparagraphs in that section prescribe the consideration for the supply instead of the value of the supply. Some examples follow in paragraphs 5.3.2 to 5.3.8 below.

5.3.2 Connected persons

The normal value of supply rules also apply to connected persons. However, in the case of a supply made for no consideration or for a consideration which is below the open market value, the consideration for the supply is equal to the open market value if the recipient would not have been entitled to a full input deduction on the goods or services acquired, had the open market value been charged on the supply.

5.3.3 ICA

The consideration in money is deemed to be the cash value of the supply. The cash value includes the cost of acquisition of the goods and VAT. In the case of a banker or financier, the cash value is normally the cost of the asset, for example the purchase price and any other costs borne by the banker. In the case of a dealer of such goods, the cash value is the price at which the goods are normally sold by the dealer and other related costs (such as installation, assembly, erection, etcetera) that form part of the amount financed under the ICA. The cash value does not include the cost of providing credit (that is, interest, finance charges or any amount determined with reference to the time value of money).

VAT 404 – Guide for Vendors Chapter 5 5.3.4 Commercial accommodation

The supply of commercial accommodation is a taxable supply. Commercial accommodation includes board or board and lodging supplied together with domestic goods or services (for example, meals, laundry services, the use of a telephone) in a house, flat, apartment, room, hotel, guest house etc. The total receipts for the supply of the commercial accommodation must exceed or be likely to exceed R60 000 for a period of 12 months before the activity will fall within the definition of an “enterprise” as defined. For example, a guest house which does not supply (or is not likely to supply) accommodation together with domestic goods and services in excess of the R60 000 threshold in a consecutive 12- month period, will not be able to register as a VAT vendor. Commercial accommodation excludes the letting or hiring of a dwelling which constitutes the place of residence of a natural person or the supply of employee housing, both of which are exempt supplies. Refer to Chapter 7 for more details.

Should a person stay in an establishment which provides commercial accommodation for an unbroken period of more than 28 days, only 60% of the all-inclusive charge for the accommodation and the domestic goods and services is subject to VAT at the standard rate. The full amount charged is subject to VAT at the standard rate when a person stays for a period less than 28 days. Any domestic goods or services which are charged separately and are not included in the all-inclusive tariff for the accommodation, are also taxed in full at the standard rate. Refer to the VAT 411 – Guide for Entertainment Accommodation and Cateringfor more information in this regard.

5.3.5 Barter transactions

In barter transactions, goods or services are exchanged for other goods and/or services. Payment of the consideration may also be partly in money, and partly in goods and/or services exchanged. To the extent that payment of the consideration is made in money, the consideration for the supply will be the amount of money. To the extent that payment is not in money, the consideration is the open market value (OMV) of goods and/or services received.

Example 8 – Barter transaction

Farmer A and Farmer B are both VAT vendors. Farmer A supplies 10 cattle (OMV = R200 each) to Farmer B. In exchange, Farmer B supplies Farmer A with 1 horse (OMV = R1 000), and a cash payment of R1 000. The VAT effect is shown as follows:

Farmer A Farmer B

R R

Output tax: (On the cattle supplied) Output tax: (On the horse supplied)

Money received as payment 1 000 Money received as payment Nil OMV of horse received as payment 1 000 OMV of cattle received as payment 2 000 Total consideration received 2 000 Total consideration received 2 000 VAT (14 / 114 × R2 000) 245,61 VAT (14 / 114 × R2 000) 245,61

Input Tax: (On the horse acquired) Input Tax: (On the cattle acquired)

Input tax (14 / 114 × R1 000) R122,80 Input tax (14 / 114 × R2 000) R245,61

Input tax is allowed on any taxable goods or services acquired to make taxable supplies. As cash (“money” as defined), is neither goods nor services, Farmer A is only entitled to deduct input tax on the OMV of the taxable goods acquired (that is, the horse). However, Farmer B acquired only goods and no cash.

5.3.6 Fringe benefits

The consideration in money is deemed to be the cash equivalent of the benefit granted to the employee as determined in the Seventh Schedule to the Income Tax Act. The consideration for a benefit that consists of a right to use a motor vehicle is determined in terms of VAT Regulation 2835 dated 22 November 1991.

Example 9 – Motor vehicle supplied as a fringe benefit

Mr D’s Wholesalers (a vendor registered under Category B tax period) purchases a “motor car” for R114 000 (including VAT of R14 000) on 1 March 2015. Mr D’s Wholesalers is not entitled to deduct an input tax credit on the acquisition of the “motor car” as it is a prohibited deduction. An employee of Mr D’s Wholesalers (who is paid monthly) is granted the right to use the motor car with effect from 1 March 2015, and Mr D’s Wholesalers bears the full cost of maintaining the vehicle.

Mr D’s Wholesalers must account for output tax on the supply of the fringe benefit as follows: Step 1 Consideration in money = determined value of the motor car × 0,003 (0,3%)

= (R114 000 – R14 000) × 0,003 = R300

Step 2 The amount of output tax payable per month will be = R300 × 14 / 114 = R36,84