C = the value of taxable supplies (R ) and D = the value of all supplies (R given in question)1 mark for correct

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1 Question (30 marks; 45 minutes) 1.1 (5 marks) The turnover-based method entails the total taxable supplies being expressed as a percentage of total supplies and is an acceptable means of determining an input tax ratio. The following formula is applied: A = B x C/D The amounts used in the above formula should exclude VAT ( value referring to an amount that excludes VAT) and the percentage of taxable use should be rounded off to 2 decimal places. The percentage of taxable usage (C/D in the above formula) is calculated only once a year, and the same percentage is used for all the inputs of that specific year if the supply is not wholly applied for taxable or non-taxable purposes. Value of taxable supplies (C) /value of all supplies (D) C = the value of taxable supplies (R ) Courier fees: R For delivering goods in SA (standard-rated) mark For delivering goods in Lesotho (zero-rated) mark Transport fees: For transporting passengers between Bloemfontein and Johannesburg (exempt in terms of s 12(g) or transport of passengers by road or rail is exempt) 0 Reason 1 mark For transporting passengers between Bloemfontein and Maseru, Lesotho (zero-rating of supply overrides exemption) mark Alternatively: 1 mark for only giving R4,5 mil as total taxable supplies WITHOUT a detail calculation and D = the value of all supplies (R given in question)1 mark for correct total supplies The percentage of taxable usage = R /R = 75% (1 mark for dividing taxable supplies by total supplies to calculate % - MWE) Total: 5 marks Available: 6 marks 1

2 1.2 (12 marks) Calculation of amount of VAT payable or refundable Output tax Courier fees - SA (R /114) (1) Courier fees - Lesotho (zero-rated supply)... Transport - SA (s 12(g) /passengers road/rail exempt supply) Transport - Lesotho (zero-rated supply)... Sale of bus (s 8(14) not subject to output tax as input tax prohibited under s 17(2) meets def of motor car... Total output tax (1)MWE Input tax Calculation of input tax deduction New bus not motor car >16 seater (R /114)... ( ) (1) New computer (R /114 70%)... (5 880) (1) Audit fees (R /114 70%)... (1 225) (1) Salaries and wages (excluded from definition of an enterprise)... Fuel (zero-rated supply)... Oil (R /114 70%)... (843) (1) Maintenance (in connection with exempt supplies... (1) Total input tax... VAT (refund due) (R R )... ( ) (1)MWE ( ) (1)MWE Total: 12 marks Available: 15 marks 1.3 (maximum 8 marks) Input tax The meals and refreshments purchased by Interstate (Pty) Limited are goods acquired for the purposes of entertainment as defined (definition of entertainment ), prohibited by s 17(2) and therefore no input tax credit may be claimed by it for these purchases.(1 mark for reference to entertainment prohibited as input tax claim) 2

3 There is an exception(1 mark for indicating any a exception to the normal entertainment rule may apply)contained in section 17(2)(a)(iii) if the meal and refreshment is supplied by an operator of conveyance to a passenger during a journey and the transport service itself is a taxable supply. (1 mark for indicating the requirements of this specific exception) The exception does not apply to the Bloemfontein Johannesburg routebecause although the meal and refreshment is supplied by an operator of conveyance to a passenger during a journey, the transport service itself is not a taxable supply. (The transport of passengers and their personal effects by road is an exempt supply in terms of section 12(g).) (1 mark for reason) The exception does apply to the Bloemfontein Maseru route because of the zero-rating of this supply. The rendering of a transport service to passengers or goods is zero-rated, according to s 11(2)(a), if transported from a place in South Africa to a place in an export country(1 mark) The zero-rating of a supply is stronger than the exemption of a supply and will therefore prevail. (1 mark) It is therefore a taxable supply. Input tax on entertainment may in terms of section 17(2)(a)(iii) be claimed if the meal and refreshment is supplied by an operator of conveyance to a passenger during a journey and the transport service itself is a taxable supply. The meals provided on this route may therefore be claimed. (1 mark for any conclusion with regard to input tax claim) There is no requirement in terms of section 17(2)(a)(iii)that the charge should cover all direct and indirect costs.(1 mark) Output tax The provisions of s 8(15) will not be applicable in respect of the meal costs incurred as it rather forms part of the expenses incurred by Interstate to perform the transport service (not than a service supplied by Interstate to the client). (1 mark) Plus (1) Bonus mark if student referred to British Airways case 3

4 Bloemfontein Maseru route The increase in the ticket price of a single fare by R20 will have VAT implications since the fare is a taxable supply (see above). (1 mark) VAT will be levied at the zero rate on the total increase in value of the ticket (R20 0% = R0).(1 mark) Bloemfontein Johannesburg route The increase in the ticket price of a single fare by R20 will not have VAT implications since the fare is an exempt supply (see above).(1 mark) Even if it were argued that R20 of the fare is for the supply of a meal and refreshment, Interstate (Pty) Limited would not be obliged to account for output tax on the R20 as it has not enjoyed an input tax credit (prohibited) for the acquisition of the meal and refreshment (section 8(14)).(1 mark) Total: 8 marks Available: 14 marks 1.4 (5 marks) Yes(1 mark), an adjustment will be necessary in the case of a change of use relating to a decrease of more than 10%(70% - 55% = 15%) (1 mark)in the extent of taxable use or application of capital goods or services > R40 000(mainframe computer s value > R40 000)(1 mark), a deemed supply arises and the adjustment will then result in output tax.this adjustment is usually only made at the end of a year of assessment (s 18(6)). OUTPUT TAX(1 mark)adjustment will be calculated on the computer (>R40 000) A B C 14/114 (1 mark)x R (1 mark)x (70% - 55%)(1 mark) 4

5 where A = 14/114 B = the lesser(0.5 mark)of: the adjusted cost (including VAT)R68 400(0.5 mark), or the open-market valuer57 000(0.5 mark)of the goods or services at the time the change-of-use adjustment is required, and C = the percentage by which the taxable use of goods or services has decreased or increased (that is, more than 10%) (70% - 55%) Total: 5 marks Available: 8 marks 5