Conditions of output tax and input tax
1. You can claim input tax on any item you purchase or any expense you have. As long as it forms part of the course of your Vat registered business.
2. There are some exceptions that you can NEVER claim input tax. These are expenses relating to entertainment, the purchase of a car, social and sports club subscriptions, exempt supplies and private/personal expenses.
GB Mining's input tax claim was invalid. SARS dismissed their claim based on items exempt from receiving input tax. The commissioner said food and accommodation for employees is entertainment.
Under Section 1 of the Vat Act, entertainment 'means the provision of any food, beverages, accommodation, entertainment, amusement, recreation or hospitality of any kind by a vendor whether directly or indirectly to anyone in connection with an enterprise carried on by him.'
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GB mining argued that the food and accommodation weren't luxurious and not provided for personal enjoyment. SARS didn't dispute this, but said it wasn't important.
The Tax Court said it's unnecessary to typify food and accommodation as either luxurious or adequate to classify as entertainment.
Based on the conclusion of this case, for income tax purposes, buying food for your employees always classifies as entertainment and never qualifies for input tax.