The more tax consulting I do the more I realise that the VAT rules for 'motor cars' are misunderstood by people in the VAT net and registered as VAT vendors.
Did you know, for example, that when you have to go to another city for business purposes and you hire a car, you are not entitled to claim the VAT charged on the car rental as an input tax credit, even if you have a tax invoice?
Did you know that when you provide your employees with a company car fringe benefit you must pay an amount of output VAT to the South African Revenue Service (SARS) on that fringe benefit?
Did you know that to calculate the VAT on the fringe benefit you must take the determined value for fringe benefit purposes (generally the cash cost) excluding VAT and multiply it by 0.3 percent if you were not allowed to claim the VAT on purchase of the vehicle, or 0.6 percent if you were allowed to claim the VAT when you purchased it, multiplied by 14/114?
Did you know that the VAT you pay to SARS on the fringe benefit is deductible for income tax purposes?
You probably do know that if you are not a motor car dealer, you may not claim the input VAT on the purchase of a motor car (as defined for purposes of the VAT Act).
What is a 'motor car' for purposes of the VAT act, anyway?
It is a vehicle used on public roads. It must have three or more wheels and be constructed or adapted wholly or mainly for the carriage of passengers. A vehicle capable of accommodating only one, or more than sixteen persons, is specifically excluded as a motor car. Also excluded are vehicles with an unladen mass of 3 500 kg or more, caravans, ambulances and vehicles constructed for a special purpose. Thus, it is clear that a two wheeled bicycle and its rider are excluded from the definition, but that a minibus is probably included.
The confusion seems to come in when you look at the 'carriage of passengers' criterion. The requirement for claiming the input VAT is that the vehicle should be not designed to carry passengers.
Thus, if you buy a Toyota Conquest and use it only to transport samples of your business's product from customer to customer you won't be able to claim a refund of the input tax. But if you buy a single cab bakkie, you will be able to claim a refund of the input VAT.
On the bakkie front, the South African Revenue Services have ruled that a double cab bakkie does not qualify for a VAT refund.
Notwithstanding that you cannot claim a VAT refund if you are supplied with a motor car or the use of a motor car, it is important to ensure that you claim a refund of the VAT charged to you on any repairs or maintenance of the car, and on the insurance of the car.
Another question we are frequently asked is: Can you claim a refund of the VAT charged to you when you buy, for example, a minibus to be used to transport hotel guests to and from the local airport, or to take people on tour of the city or the area. The confusion on this point arises because, generally, a charge is made to the passengers.
The VAT Act, however, considers such a person to be conducting a transport business and makes the provision of the transport service exempt for VAT purposes. In this situation you may not charge VAT on the passengers' fees and equally may not claim a refund of the VAT on the vehicle. (Special rules however apply if you are transporting the people across the South African border to other countries).
VAT and motor cars is clearly a complicated business and if you're in doubt, I suggest you ask a VAT expert for help.