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Claim input tax on gifts and awards in these 2 situations

by , 13 November 2015
You can deduct input tax as long as it relates to the carrying on of your enterprise. This means that if you pay VAT on services you require to run your business, you can claim back the input tax.
But there are certain deductions which SARS will deny from the very onset.

Now, when it comes to input tax deductions for gifts and awards, SARS views them as entertainment and so won't allow it. Examples of gifts for clients such as chocolate, liquor, rugby tickets, holidays, etc. don't qualify for input tax

But it's worth noting that there are exceptions! And here are two classic examples which demonstrate that you can claim input tax on gifts and awards:

Example#1:

At a Christmas party, the boss, Jessy, wishes to recognise one of her employees' long service.

She awards him with a 30-year service award with a watch valued at R4800.

It's not a fringe benefit for income tax purposes. So Jessy can claim the VAT of R589 (4800 x 14/114) as input tax. No output tax is payable on the award.
 
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If you claim input tax, your SARS VAT audit is impending
 
And when the SARS auditor comes knocking or sends a query, he'll check if:
 
·        Your books and records comply with the requirements of Section 55 of the VAT Act;
·        You didn't claim on exempt supplies;
·        Any of your claims were for non-taxable supplies;
·        You apportioned inputs correctly and at the right tax rate (Sections 16, 17 and 20 of the VAT Act);
·        And more!
 
But the truth is, even if you're entitled to your claim, but don't have the valid documentation, he'll still reverse your deduction!
 
Here's everything you need to secure every input tax claim you submit.

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Example#2:

Alan owns a company which utilises several company trucks that carry very flammable substances.

By an unfortunate set of events, one of the trucks catches alight and the driver is trapped inside.

One of your workers, in his bravery, gets the trapped driver out of the burning wreckage, after which you then decide to give him a computer valued at R5000.

In this circumstance, the company can claim input tax on the computer. This is because SARS doesn't recognise gifts or goods for bravery as fringe benefits.
 
Those were 2 classic examples of when you can claim input tax on gifts and awards, and still be in compliance with the Tax Act, VAT Act and Tax Administration Act.

To learn more, subscribe to the Practical VAT Loose Leaf Service. 

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