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Revealed: Three legal requirements for notional input tax

by , 17 January 2014
Notional input tax is the Vat you can claim on secondhand goods, if you're a vendor who buys the goods for your business from a person who isn't a vendor. Although you don't charge any Vat on secondhand sales, there are some important rules you must follow if you want to claim an input tax credit. Here are the three legal requirements for notional input tax.

Is there a need for notional input tax?

Yes.

Because the seller isn't a vendor, regular Vat isn't levied on secondhand goods. However, because the buyer is a Vat vendor, he'll have to charge Vat when he sells those goods.

To create some sense of fairness, the purchasing vendor is entitled to a 'notional input tax deduction' on the purchase of those goods – even though he'll not have a tax invoice to back up this specific input tax deduction.

But be warned, even though you don't need a tax invoice for a notional input tax deduction, it doesn't mean that you escape SARS scrutiny entirely.

The Vat Act lays down a whole list of requirements you must meet when it comes to notional input tax deductions.

Here's a checklist of the three legal requirements for notional input tax

Requirement #1: This concession only applies to secondhand goods.

Requirement #2: Secondhand goods are spelt out in the Vat Act as being:

  • Goods which were previously owned or used (including fixed property);
  • A share block share converted into a sectional title unit.

But, secondhand goods are NOT:

  • Animals (livestock)
  • Gold coins
  • Prospecting, mining and exploration rights.

Requirement #3: The Practical Vat Loose Leaf Service explains that the purchasing vendor must keep records relating to the purchase of the secondhand goods, if he pays more than R50 for the goods.

This record not only satisfies SARS, but the South African Police Service (SAPS) as well! The record must contain the following:

  • The name and ID number of the seller, as well as a copy of his ID.
  • If the seller is a company, the name and ID number of the person representing the company and the company registration number, as well as a copy of the person's ID together with a copy of a letterhead of the company which verifies the company's name and registration number.
  • The seller must complete a Vat 264 form and you must keep it for five years.
  • The address of the seller.
  • The date of the purchase or transaction.
  • A description of the goods.
  • The quantity or volume of the goods.
  • The amount paid for the goods.

Well there you have it. Now that you know the three legal requirements for notional input tax, make sure you comply.

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