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SUGGESTED SOLUTION TO EXERCISE 29.11 Page only
1. True – section 7(1) and section 11(1) of the Value-Added Tax Act.
2. True – the definition of ‘input tax’ in section 1(1).
3. False.
4. True – unless the taxable supplies are not less than 95% of its total supplies, then input tax is deductible in full (section 17(1)
proviso (i)).
5. True – under section 28(1).
6. False – if it is paid by electronic transfer then it can be paid up to the last business day of the month (proviso (ii) to
section 28(1)).
7. True – under section 16(3)(a)(ii)(aa).
8. True – unless the vendor is a motor-car dealer (section 17(2)(c)).
9. True – unless one of the exceptions (exemptions) to section 17(2)(a) applies.
10. True – under section 18(3).
11. True – unless one of the exceptions (exemptions) to section 8(8) applies.
12. False – the definition of the ‘prescribed rate’ in section 1(1) is linked to the so-called PFMA rate. The appropriate rate on
1 December 2021 was 7%.
13. False – the definition of the ‘prescribed rate’ in section 1(1) is linked to the so-called PFMA rate. The appropriate rate on
1 December 2021 was 3%.
14. True – in this regard refer to section 23C of the Income Tax Act.
15. False – the value of his taxable supplies must exceed R1 000 000 (section 23(1)(a)).
**2022**
, SUGGESTED SOLUTION TO EXERCISE 29.2
1 Page only
Suggested Solution to Part 1
The onus is on Sedgwick Darnley to register as a vendor. He must register if he is carrying on an enterprise on or after
30 September 1991, and his total taxable supplies during a 12-month period exceeds R1 000 000, or are likely to exceed this
amount (section 23(1)).
Sedgwick Darnley may also apply for voluntary registration if his taxable supplies do not, or are unlikely to, exceed
R1 000 000. He must satisfy the Commissioner that he will keep satisfactory records and will complete and submit tax returns
as required by the legislation. (He is not allowed to register on a voluntary basis unless the total value of his taxable supplies
exceeds R50 000 a year (section 23(3)).)
Under section 23(1)(a), when a person carrying on an enterprise has reasonable grounds to believe that his taxable supplies
for the following 12 months will exceed R1 000 000, he must register as a vendor within 21 days after the beginning of that
period. If he has not registered under section 23(1)(a), then, under section 23(1)(b), he must register within 21 days after the
end of the period of 12 months in which his taxable supplies have exceeded R1 000 000.
From the beginning of February 2022, it became likely that Sedgwick Darnley’s taxable supplies during the following
12 months would exceed R1 000 000 (R100 000 × 9 = R900 000 + R150 000 (R50 000 × 3) = R1 050 000). Therefore, he
should have registered as a vendor no later than 21 February 2022.
The other alternative will not apply to Sedgwick Darnley since he cannot reasonably say that he had no reason to believe that
his taxable supplies for the 12 months from 1 January 2022 would exceed R1 000 000.
Suggested Solution to Part 2
There are two bases for accounting for value-added tax to the Commissioner, namely,
• the invoice basis, and
• the payments basis.
All vendors must account for value-added tax according to the invoice basis, unless specific application has been made for the
payments basis:
• The payments basis may be used by only a non-juristic person (for example, a partnership or a sole proprietor) when the
taxable supplies during a 12-month period do not exceed R2 500 000 (section 15(2)(b)(i)).
• The invoice basis requires the declaration to the Commissioner of the total output tax on supplies and deemed supplies
made by the enterprise. From this output tax is deducted the total input tax on valid tax invoices held by the vendor for
supplies from suppliers, credit notes issued by him, debit notes received by him and other adjustments under the Value-
Added Tax Act.
When the output tax exceeds the input tax, the difference must be paid to SARS by the vendor. But when the input tax exceeds
the output tax, the difference will be refunded to the vendor.
The payments basis differs from the invoice basis in that only the output tax actually received by the vendor is declared to
SARS. Invoices for which payment has not yet been received are therefore ignored. Only input tax that has actually been paid
to the supplier may be deducted from the output tax (provided he is in possession of a valid tax invoice for the supply). Value-
added tax on supplies for which a valid tax invoice has been received, but which have not yet been paid for, may not be
deducted.
The particular basis used will affect the cash flow of the enterprise in different ways. The most beneficial cash-flow result for
the vendor of the two bases should then be investigated.
Suggested Solution to Part 3
Since Sedgwick Darnley trades in his own name, that is, he does not trade as a juristic person both bases are available to him.
In his situation, the invoice basis will provide the best result since his debtor’s collection period (of 30 days) is shorter than
his payment period of his creditors (of 60 days). Input tax can therefore be deducted before it is paid to his creditor.
**2022**
, SUGGESTED SOLUTION TO EXERCISE 29.3
Page 1 of 2 pages
Sparkling Pools CC
Suggested Solution to Part 1
Customers (contracts) Dr 28 750
To Contract receipts and accruals 25 000
To Output tax 3 750
Being the maintenance of 50 swimming pools at R575 (R500 plus value-added tax of R75) a
month each for the month of March 2021 (section 7(1) of the Value-Added Tax Act).
Customers (contracts) Dr 28 750
To Contract receipts and accruals 25 000
To Output tax 3 750
Being the maintenance of 50 swimming pools at R575 (R500 plus value-added tax of R75) a
month each for the month of March 2021 (section 7(1) of the Value-Added Tax Act).
Customers (other) Dr 11 500
To Contract receipts and accruals 10 000
To Output tax 1 500
Being sundry maintenance work performed during March 2021 and April 2021 at R10 000 (plus
value-added tax of R1 500) (section 7(1) of the Value-Added Tax Act).
Salaries Dr 47 600
To Cash 47 600
Being salaries for the months of March 2021 and April 2021 (R5 600 each for three employees for
two months and one employee at R7 000 for two months).
This salaries transaction is not subject to value-added tax because proviso (iii)(aa) to the definition of an ‘enterprise’ deems the
rendering of a service by an employee to his employer in the course of his employment not to be the carrying on of an enterprise.
Motor vehicle Dr 161 000
To Cash 161 000
Being the purchase of a second-hand truck (definition of ‘second-hand goods’).
Input tax Dr 21 000
To Motor vehicle 21 000
Being the deduction of a notional (or deemed) input tax on the second-hand truck that was
purchased under a cash transaction (section 16(3)(a)(ii)(aa)). The notional or deemed input tax
deducted has been determined as follows:
R161 000 × = R21 000.
A truck is not a motor car as defined (definition of a ‘motor car’ in section 1(1)).
Motor vehicle expenses (fuel) Dr 5 060
Input tax (at 0%) Dr -
Being fuel for March 2021. 5 060
Fuel is zero rated (section 11(1)(h)).
Motor vehicle expenses (licence) Dr 690
To Cash 690
Being a licence purchased for the second-hand truck.
The issuing of a licence by a public authority has not been determined by the Minister of Finance to be an enterprise (see
paragraph (b)(i) of the definition of an ‘enterprise’). This means a public authority cannot charge value-added tax when issuing a
licence.
Motor vehicle expenses (insurance) Dr 700
Input tax Dr 105
To Cash 805
Being insurance for the month of March 2021 for the second-hand truck (definition of ‘input
tax’).
Cash Dr 149 500
To Motor vehicle 130 000
To Output tax 19 500
Being an insurance award received.
A deemed supply arises for value-added tax purposes resulting in a deemed output tax of R19 500 (section 8(8)).
, Salaries Dr 104
To Output tax 104
Being the output tax raised on the deemed supply made when the supervisor enjoys the fringe
benefit in the form of the use of the truck (section 18(3)).
**2022** /continued
on page 2
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