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25 Jul 2018

In certain circumstances a VAT vendor may deduct a notional input tax credit in respect of “second-hand goods” acquired from non-vendors where no VAT is actually payable to the supplier.

Broadly speaking, “second-hand goods” are defined to constitute inter alia goods which were previously owned and used – excluding animals, certain mineral rights and goods containing gold or consisting solely of gold.

“Goods” are in turn defined to include inter alia fixed property and accordingly, the principles set out below apply equally where a vendor acquires fixed property. In such instance, provided the various requirements set out below are adhered to, the vendor would be entitled to a notional input credit which would not be limited to the transfer duty paid by the vendor in respect of the acquisition of the fixed property (as was the position prior to 10 January 2012).

In order for a notional input credit to be deductible in respect of the acquisition of second-hand goods the following requirements are to be adhered to:

  1. The supply may not be a taxable supply (e.g. the supplier should not be a VAT vendor).
  2. The supplier must be a South Africa resident and the goods supplied must be situated in SA.
  3. The purchaser must have made payment of the supply (if only partial payment is made the input credit claimable will be limited with reference to such partial payment).
  4. The goods must be used by the purchaser for purposes of consumption, use or supply in the course of making taxable supplies.
  5. The purchaser must be in possession of the following documents in order to be in a position to claim the input credit:
    • A declaration (in the form as may be prescribed by the Commissioner) by the supplier stating whether the supply is a taxable supply or not.
    • Sufficient records to enable the following to be ascertained:
      • The name of the supplier and his ID number or, if the supplier is not a natural person, the name and ID number of the natural person representing the supplier and any legally allocated registration number of the supplier.
      • The purchaser is to retain a photocopy of the ID document of the supplier, in case of a natural person or, in case of a legal person, the purchaser is to verify the name and registration number of the supplier with reference to its business letterhead or other similar document and retain a photocopy thereof.
    • The address of the supplier.
    • The date upon which the second-hand goods were acquired or the goods were repossessed or surrendered, as the case may be.
    • A description of the goods.
    • The quantity or volume of the goods.
    • The consideration for the supply.
    • Proof and date of payment.

Should a vendor make zero-rated exports and claim any notional input credits in respect of second-hand goods acquired, the notional input tax credit claimed may impact on the ability of such vendor to make zero rated supplies.

In particular, in terms of section 11(1) of the VAT Act the zero rate cannot apply where second-hand goods are acquired by the supplier and subsequently exported after a notional input tax credit was claimed in respect of the acquisition thereof. In such instance, VAT will have to be accounted for at an amount equal to the notional input tax credit originally claimed on the acquisition of the goods to be exported.

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