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When should you apportion input tax?

by , 10 September 2014
It seems like there's a lot of confusion when it comes to apportionment. The number of questions our Vat experts get on this topic is proof of this.

One particular question that keeps coming up is: When should one apportion input tax?

Read on to find out the answer to this question so you'll avoid a 10% penalty from SARS.

Here's when you should apportion input tax

If your business only makes taxable supplies, apportionment won't be a problem for you; you don't have to worry about it.

But, if you make both taxable and exempt supplies, it's a different story.

According to the Practical Vat Loose Leaf Service, vendors who'll have to consider apportionment are those who make both taxable and exempt supplies. For example, a vendor who lets out shops and/or offices and residential flats, or one who earns a large amount of interest from his debtors. A vendor running a gym studio (taxable) and a crèche (exempt) from the same premises would also have to consider apportionment.

This means, when it comes to input tax, these vendors can't claim the full amount, they're only entitled to a portion.

Take a look at the example below – it shows how to apportion input tax.

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Here's a practical example that shows how to apportion input tax

KD Properties buys a building. The property includes shops on the ground floor and flats on the first and second floor. 

When it comes to claiming input tax on the purchase of the building, KD Properties can't claim all the Vat, it'll only claim the portion that relates to the taxable supplies they're making – which is the shop rental. As they haven't yet really calculated an apportionment percentage they claim 40% of the Vat back.

Be warned! If SARS finds you claiming input tax where you shouldn't, or where you're only entitled to a portion, it'll levy a10% penalty and monthly interest on the amounts you claimed that you shouldn't have. So make sure you apportion input tax now that you know when to do this.

PS. Here are 34 Input tax savings you could be missing out on…

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