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Don't lose out on this input tax saving when you give away a car as a prize

by , 30 December 2014
Running competitions with big prizes is a great way to attract new business and get people to buy your products.

Because everyone would love to win a new car, you might decide to run a competition to give away a car as a way to get in new business.

But be careful, there are specific Vat implications if you give a car as a prize.

Read on to find out what they are so you don't lose out on that all important input tax...

 

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Here's how SARS treats the Vat on a car as a prize

 
For a customer to enter a competition, you'll normally get them to:
 
- Buy a certain product or shop at a certain place; and
- Fill in an entry form with their name and contact details! 
 
But, it's important to note that your customer didn't have to pay an entry fee to participate in the competition.
 
According to the Vat Act, if your business gives a car as a prize in a competition, you can claim the Vat back on what you paid for the car as input tax.
 
But there's a condition. You can't award the car to yourself as the business owner, your employees, directors or their relatives.  The competition must also be recurring. In other words, you give away a car as prizes on a continuous basis, such as once a year, or every 18 months, etc.
 
Here's an example to help explain:
 
Poker Dot Stores buys 12 cars (valued at R114 000 each) for R1 140 000 (including Vat of R140 000) in January 2014. It gives away one car each month as a prize to a lucky shopper. The competition starts on 1 March 2014 and will run to 1 March 2015.
 
Poker Dot Stores can claim the input tax of the car it gives a car away as a prize each month. So, in the March 2014 Vat return it can claim R14 000 input tax. In the April return, it can claim another R14 000 input tax, and so on.
 
But what if you're a casino owner and you're giving a car away as a prize? 
 
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Here's how to treat Vat if you're a casino owner giving away a car as a prize

 
Most vendors can't claim input tax on cars. But the Vat Act says you can claim input tax on a car if you get bets, and the prize is a car.
 
This means you take bets or entries for a competition, and the prize is a car, the casino can claim input tax for the same period that you award the car as a prize. 
 
What this means is that if you take bets or have a competition where the prize is a car (whether you're a casino or a normal business) you can claim input tax on the car. 
 
But don't forget about collecting Vat on those bets if you're a casino. You can find out how to treat the Vat on these in the Practical Vat Loose Leaf Service
 


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