Some vehicles you cannot claim VAT on, some you can and knowing the difference can save you a lot of money.
When can you claim input VAT on a vehicle?
Most businesses that are registered for VAT will be aware that you generally cannot claim input VAT on the purchase of a ‘motor car’ as defined in Section 1 of the Value-added Tax Act. But understanding what is included in this definition and more importantly, what is excluded could potentially result in the entire VAT amount being refunded to you.
Firstly, a vehicle capable of accommodating only one person or suitable for carrying more than 16 persons is excluded from the definition. I’m not aware of any road-going vehicles (other than the largely defunct 50cc motorcycles) that can carry only one person, but at least we now know one reason why minibus taxi operators try to cram so many passengers into their vehicles if they are VAT-registered, that is. Bus operators would be able to claim under this exemption.
Also excluded are vehicles of an unladen mass of 3,500 kg or more. Those heavily armoured BMWs beloved by captains of industry and senior politicians may just qualify, provided that they are used “in the taxpayer’s trade”. Under normal circumstances, this exemption applies to heavy-duty trucks.
Caravans and ambulances are also excluded. You would probably need to prove that the caravan is used to make taxable supplies (for example, the mobile hot-dog vendors that one sees at church bazaars).
In addition, vehicles designed for special purposes other than the carriage of persons are excluded. The fact that a mobile crane or tractor can be driven does not invalidate this exemption, since the fact that such vehicles have accommodation for a driver is incidental to the vehicle’s primary purpose.
Game-viewing vehicles that can carry seven or more persons (except for sedans, minibuses, double-cab bakkies, and station wagons) are also exempted.
Finally, and on a more macabre note, vehicles that have been permanently converted into hearses are also exempt from this prohibition.
However, when it comes to tax, what is almost as important as understanding what is written in the legislation, is to understand what is not written in the legislation.
In the case of the definition of ‘motor vehicle’, it includes “a motor car, station wagon, minibus, double-cab light delivery vehicle (bakkie) and any other motor vehicle of a kind normally used on public roads, which has three or more wheels, and is constructed or converted wholly or mainly for the carriage of passengers.
There are two obvious loopholes that spring to mind, here.
Firstly, it is common cause that the input VAT can be claimed on an ordinary single-cab bakkie. But what about those vehicles that have ‘stretched’ single cabs, such as the Toyota Hilux Xtra Cab or the Ford Ranger Super Cab?
I’m surprised that the legislators have not been more specific, but I would argue that you could claim the input VAT in this case because the vehicle, despite having the extra space, is nevertheless not designed “wholly or mainly for the carriage of passengers”.
In fact, the guideline that SARS uses is based on whether the load bay (or ‘bak’) is larger than the passenger section. If the answer is “yes”, claims for the input VAT are generally allowable. However, if you tried to claim input VAT on a canopy and ‘jump seats’ as well, you could be treading on thin ice as far as SARS is concerned!
The second loophole relates to motorcycles. After all, these vehicles have less than three wheels, which excludes them from the definition of a motor vehicle.
This exemption is aimed at 125cc delivery bikes, but based on a strict reading of the definition, there seems to be no reason why input VAT cannot be claimed on your Honda Gold Wing that you glide on with that smug expression on your face as the rest of us are stationary on the M1 during rush hour.
SARS is likely to take exception to these loopholes and may change the rules in future. Or perhaps the amount of VAT is so small in the greater scheme of things that they may end up simply not bothering.
However, until SARS decides to change the rules, our legal obligation as citizens is to work within the laws laid down by the State. There is no moral obligation to pay any more tax than that which is legally due.
WRITTEN BY STEVEN JONES
Steven Jones is a registered SARS tax practitioner.
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