We asked the Vat
gurus at the Practical Vat
Loose Leaf to shed light on exempt supplies, so you can get their treatment right!
First, there are three exempt supply rules you SHOULD follow:
1. Don't charge Vat
on exempt supplies of goods or services you make.
2. Don't include the value of your exempt supplies in your taxable turnover.
3. If you only make exempt supplies of goods or services, you don't have to register as a Vat
vendor.This means you'll be spared the pain of accounting for and paying over Vat
to SARS, as well as submitting returns and record keeping for Vat
purposes.The disadvantage is that you're barred from recovering any input tax
you paid on supplies of goods or services to you, to enable you to make those exempt supplies.
There are ten types of exempt supplies:
· Certain financial services
; e.g. the issuing, drawing and so forth of cheques or letters of credit or debt securities. Also, services pertaining to life insurance, superannuation schemes, medical schemes and provident, pension and retirement annuity funds.
· Supplies by 'associations not for gain' of 'donated goods or services'
(both of these concepts are defined in the Vat
Act). Example Should Save the Children International sell blankets which were donated to them to raise funds, this would be an exempt supply and there's no Vat
on the sales of the blankets. Also no Vat
is charged on the supply by Save the Children International of goods they made themselves e.g. beaded necklaces, if at least 80% of the value of the materials used in them consists of donated goods.
· Rental of a dwelling,
including employee housing. Warning: This doesn't apply to the supply of 'commercial accommodation', that's, lodging or board and lodging with domestic services, which is taxable. Also, if you let a dwelling but it's used as offices, even though it's a house, the exemption won't apply and you must levy Vat
· Educational services, by an organisation registered in terms of an education law.
The supply of training, such as vocational, or even technical training, by an employer to employees doesn't constitute the supply of educational services in this sense, because this is specifically excluded by Section 12.
· Services of employee organisations like trade unions, to their members
. If you run an employee organisation, this exemption applies only to the extent of membership contributions. So, the services can only be exempted as far as the contributions can be stretched. Here's an example: Staffhelp is an employee organisation. One of the services they provide is reasonable holiday amenities for members. To the extent that this requires payment that exceeds membership contributions, it won't be exempt.
· Certain services to members by body corporates, share blocks or old age housing development schemes funded out of levies
(provided this doesn't include services under management of a property time sharing scheme). These services may include managing collection and application of levies, and gardening services.
· Letting of leasehold land
– for example, 99-year leases – where that land will be used for the erection of dwellings. Timeshare schemes are not exempt and are specifically excluded from the list!
· Public road and railway transport to fare-paying passengers, and their personal luggage
. This applies where the public transport is supplied between two places in South Africa in the course of a transport business, in the transportation service supplier's vehicle that's operated by him or his agent. Unfortunately, this excludes gameviewing drives and transportation of passengers by air and sea, which is standard-rated. In the case of international transport, the zero-rate applies.
· Childcare services in a crèche or after-school care centre.
· The sale or letting of land outside the Republic.
Now you know how to handle exempt supplies correctly, always!