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Important rules to follow for input tax deductions for gifts and awards

by , 02 June 2015
Thanks to SA laws, you can deduct input tax as long as it relates to the carrying on of your enterprise. In other words, if you pay Vat for services you need to run your business, you can claim back the input tax.

However, you should know that there are certain deductions SARS will deny from the onset. In this case, it isn't relevant if the cost you incur is in connection with your enterprise.

One such place is input tax deductions for gifts or awards as entertainment.

Today, we take a look at this issue more closely.

Here's the golden rule for Vat and awards

SARS views an input tax deduction for gifts or awards as entertainment and won't allow it!

But there's also an exception. Let's look at a few examples to see where you can claim and where you can't claim.

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Example: Joe Boss believes its good customer relationship building practice to give clients gifts for their birthdays.

This includes a bottle of expensive wine, a lunch voucher and gift voucher. He can't claim input tax on these gifts. Important: Gifts to clients such as liquor, chocolates, rugby tickets, holiday weekends, hunting trips, etc. don't qualify for input tax!

Example: At the Christmas party, Joe Boss recognises the hard work of several of his staff members. He rewards them with R500 cash each. He also thanks a staff member who has been with him for 30 years. He presents her with an engraved gold watch costing R4 800.

The watch qualifies as a long service award. It's not a fringe benefit for income tax purposes. So, Joe Boss can claim the Vat of R589 (R4 800 x 14/114) as input tax. No output tax is payable on the award. He can't claim input tax on the R500 cash awards.

Example: A rapid transport company transports hazardous chemicals for clients. A truck is involved in an accident and a worker pulls the driver out of the burning cab. The company gives the worker a TV set costing R5 000 as a reward for his bravery.

In this circumstance, the transport company can claim input tax on the TV set. SARS doesn't see awards or goods for bravery as fringe benefits.

Let's look at what the Vat Act says about promotional gifts and plants and flowers as gifts:

What the Vat Act says about promotional gifts:
SARS will allow input tax on the acquisition of certain promotional gifts. For example, golf shirts, t-shirts, umbrellas, pens, calendars, desk pads, calculators etc. These are gifts.

What the Vat Act says about plants and flowers:
If an employee has a child, is ill or there's a funeral and you send flowers, SARS will let you claim the input tax on these flowers as a deduction. This is a gift.

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