To claim VAT, or not to claim

Some vehicles you cannot claim VAT on, some you can. Knowing the difference can save you a lot of money.

When can you claim input VAT on a vehicle?


Most businesses that are registered for VAT will be aware that you generally cannot claim input VAT on the purchase of a “motor car” as defined in Section 1 of the Value-added Tax (VAT) Act. But understanding what is included in this definition – and more importantly, what is excluded – could potentially result in the entire VAT amount being refunded to you.


Firstly, a vehicle capable of accommodating only one person or suitable for carrying more than 16 persons is excluded from the definition. I’m not aware of any road-going vehicles (other than 50 cm3 motorcycles) that can carry only one person, but at least we now know one reason why minibus taxi operators try to cram so many passengers into their vehicles – if they are VAT-registered, that is. Bus operators would be able to claim under this exemption.


Also excluded are vehicles of an unladen mass of 3 500 kg or more. Those heavily-armoured BMW’s beloved by captains of industry and senior politicians may just qualify, provided that they are used “in the taxpayer’s trade”.  Under normal circumstances, this exemption applies to heavy-duty trucks.


Caravans and ambulances are also excluded. You would probably need to prove that the caravan is used to make taxable supplies (for example, the mobile hot-dog vendors that one sees at church bazaars).


In addition, excluded are vehicles designed for special purposes other than the carriage of persons. The fact that a mobile crane or tractor can be driven does not invalidate this exemption, since the fact that such vehicles have accommodation for a driver is incidental to the vehicle’s primary purpose.


Game viewing vehicles that can carry seven or more persons (except for sedans, minibuses, double-cab bakkies, and station wagons) are also exempted.


Finally, and on a more macabre note, vehicles permanently converted into hearses are also exempt from this prohibition.


However, when it comes to tax, what is almost as important as understanding what is written in the legislation, is to understand what is not written in it. In the case of the definition of “motor vehicle”, it includes “a motor car, station wagon, minibus, double cab light delivery vehicle [bakkie] 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” (my emphasis).


There are two obvious loopholes that spring to mind, here.


Firstly, it is common cause that the input VAT can be claimed on an ordinary single-cab bakkie. But what about those vehicles that have “stretched” single cabs, such as the Mitsubishi Colt Club Cab or the Ford Ranger Super Cab? I’m surprised that the legislators have not been more specific, but I would argue that you could claim the input VAT in this case because the vehicle, despite having the extra space, is nevertheless not designed “wholly or mainly for the carriage of passengers”.


If you claim input VAT on a canopy and “jump seats” as well, however, you could be treading on thin ice!


The second loophole relates to motorcycles. After all, these vehicles have less than three wheels, which excludes them from the definition of a “motor vehicle”. (Just ensure that the side-car is specified separately!)  This exemption is obviously aimed at 100cc delivery bikes, but based on a strict reading of the definition, there seems to be no reason why input VAT cannot be claimed on your Honda Gold Wing that you glide past with that smug expression on your face as the rest of us are stationary on the M1 during rush hour.

The South African Revenue Service is likely to take exception to these loopholes, and may change the rules in future. Or perhaps the amount of VAT is so small in the greater scheme of things that they may end up simply not bothering. Until such time, our legal obligation as citizens is to work within the laws laid down by the State. There is no moral obligation to pay any more tax than that which is legally due.

COMMENTS   1

Comments on this article are closed.

Steven,

The test used by courts on the single/double/club cab cars are the following: If the cabin takes more than 50% of the total length of the vehicle it is a motor vehicle as defined. Stupid test actually if one takes the Ford F250 as an example where the car is lengthened as to create that 50% impression. As for bikes: The VAT vendor still needs to use the bike to produce taxable income before VAT can be claimed. I doubt that the Honda or BMW bike owner would be able to comply with that!

End of comments.

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