Input tax on fixed property acquired – the devil in the detail

This article deals with the documentary requirements to claim input tax on the acquisition of fixed property. In practice VAT vendors are often confused as different rules apply to fixed property acquired from VAT registered suppliers and suppliers that are not registered as VAT vendors. This article addresses these uncertainties.

Introduction

The documentary requirements applicable to claiming input tax and notional input tax deductions with regards to the acquisition of fixed property are not that different from the normal rules applicable to claiming input tax. There are however a few additional rules that VAT vendors must be aware of before the deductions are made as the amounts involved are normally quite significant.

Property acquired as a taxable supply

The documentary rules applicable to the acquisition of fixed property from a VAT vendor are quite simple. The VAT vendor making the claim must be in possession of a valid tax invoice issued by the seller. The purchaser must be in possession of the tax invoice at the time that the VAT return in which the deduction is made, is submitted.

The good news is that there is no requirement that the input tax deduction may only be claimed once the property has been registered in a deeds registry in the name of the purchaser, but …

The notional input tax deduction may only be made to the extent that the purchase consideration has been settled in a tax period. The input tax deduction must accordingly be claimed on the payments basis.

Property acquired from non-VAT vendors

Special rules apply to properties falling into this category. Essentially no input tax deduction may be made before the property has been registered in the name of the purchaser and only to the extent that the purchase consideration has been settled in a specific tax period.

But is does not end there …

The person making the deduction must obtain and retain a declaration from the seller that the sale is not subject to VAT in a form prescribed by the Commissioner. The form that must be obtained and retained is the VAT264 which is available on the SARS website. The fact that the agreement of sale may indicate that the sale is not subject to VAT does not comply with this requirement as it is not in the form prescribed by the Commissioner.

But that is still not the end …

The purchaser must maintain a whole host of records when claiming a notional input tax deduction. From the records SARS must be able to establish and verify the identity of the seller, the address of the seller, the date on which the goods were acquired, a description of the goods, the quantity or volume of the goods, the consideration paid for the goods and proof of payment.

The purchaser must hold these documents when the claim for the notional input tax deduction is submitted. The documentation cannot therefore be obtained after the event.

If the correct documentation is not held at the time that the VAT return is submitted, the input tax deduction claimed will be denied exposing the VAT vendor to the imposition of late payment penalties and interest. In a worst-case scenario it may give rise to the imposition of understatement penalties.

Conclusion

As always, the devil is in the detail! Lack of attention to detail in this critical area of VAT compliance may lead to costly school fees!