if sold as a going concern ); and

• income from any other business activity carried on such as: the sale of any enterprise stock or assets; the sale or trade-in of old farming equipment, trucks, tractors and other farm vehicles; the sale of scrap, off-cuts etc.

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Example 25 – Trading-in of old vehicles or equipment

Mr Farmer decides to purchase a new tractor for R114 000 (incl. VAT): He trades in one of his old tractors and receives R22 000 for it, which amount is set-off against the purchase price of the new tractor.

VAT 201 return for Mr Farmer R

Output tax: old tractor sold (field 4A) R22 000 x 14/114 = 2 701.75

Less: Input tax: new tractor purchased (field 14) R114 000 x 14/114 = (14 000.00)

Net VAT (11 298.25) Refund

11.3

ZERO-RATED SUPPLIES

To assist farmers with their cashflow, many of the products which are produced or consumed in the course of conducting a farming enterprise are zero-rated. Part A of Schedule 2 to the Act lists the types of supplies and the conditions under which a farming, agricultural or pastoral enterprise may purchase certain goods which they regularly need at the zero rate.

Some examples of these goods are –

• stock licks;

• fertiliser;

• seed;

• pesticide;

• remedies or medicines (but not in respect of other items charged such as syringes or vet’s fees);

• animal, poultry, fish or game feed (this includes any vitamins, bone products or maize products); and

• plants – this includes trees, bulbs, roots, cuttings or similar plant products used for cultivation. In order to be able to purchase the above goods at the zero rate, the following requirements must be met:

• The notice of VAT registration (VAT 103) must be presented to the supplier.

• The VAT 103 must contain a clause no.7 on it, confirming that the main business is a farming agricultural or pastoral enterprise.

• The VAT registration number of the purchaser must appear on the tax invoice.

• The goods supplied must be specified in Part A of Schedule 2 to the VAT Act.

If it is found by SARS that the above conditions have not been met, the supplies in question will be standard rated on assessment.

Note that the zero rate will not apply where –

• other goods or services not listed above are supplied to the agricultural industry, for example, it will not apply to the consultation fee charged by a vet to attend to a sick animal, nor would it apply to the goods or services acquired to install a new irrigation system on your farm; or

• the sale of the goods concerned are prohibited in terms of section 7bis of the Fertilisers, Farm Feed Agricultural Remedies Act 36 of 1947, for example, the sale of a banned substance such as DDT.

Part B of Schedule 2 to the VAT Act lists the basic foodstuffs which are subject to the zero rate. Many of these products are sold by farming enterprises, for example, raw fruit and vegetables, maize, milk, eggs, beans, mealies etc. Please remember to show the total amount received in field 2 on your VAT return – failure to do so will result in unnecessary audits.

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Farmers must supply their VAT registration numbers to co-operatives and abattoirs to which supplies are made so that the correct amount (including VAT) can be paid. Also remember that where a farmer receives a portion of the income from a harvest (crop sharing), VAT must be paid at the standard rate on that portion of the proceeds unless the supplies are zero-rated items in terms of Schedule 2 of the VAT Act as discussed above.

Refer to Chapter 6 for more details regarding zero-rated supplies.

11.4

INPUT TAX

Generally, input tax may be deducted on all expenses incurred in carrying on a farming enterprise where VAT has been paid, but the costs in respect of the following may not be deducted:

• The purchase or rental of double-cab vehicles (4x4’s), SUVs, sedan and sports cars, station wagons or mini vans, regardless of the fact that they may be used entirely for farming operations.

• Rations provided to employees (including any other costs in regard to providing the meals).

• Employee housing as well as any costs in respect of your own residence, for example, telephone accounts, maintenance of your own home or the home of an employee, electricity and water etc.

• Zero-rated purchases such as fertilizers, petrol, diesel, pesticides etc.

Refer to Chapter 8 for more details in this regard.

11.5

DIESEL REFUNDS

Farming is a qualifying activity under the Diesel Refund Scheme. Most farming enterprises would therefore qualify to be registered for the available refund. To register for the scheme you need to complete and submit a form VAT 101D together with your application to be a VAT vendor, or once you are already registered for VAT.

Refer also to Chapter 2.

Note that refunds under the Diesel Refund Scheme are merely processed by utilising the VAT administrative system. The concession is actually granted to certain qualifying purchasers in terms of the Customs and Excise Act. The diesel refunds are therefore offset against any VAT which may be payable for the tax period concerned, or alternatively, will increase any VAT refund if the input tax for the period exceeds the output tax liability.

Any diesel refund which is found to be incorrectly deducted and paid would have to be paid back to SARS, together with any penalty, interest or forfeiture, which may be applicable.

For more details about the scheme, refer to the AS-VAT-DR-03 – Quick Reference Guide to Diesel Biodiesel Refund.

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CHAPTER 12