August 15, 2022

VAT on Second-hand goods

A VAT Vendor can claim an Input tax deduction on Second-hand goods purchased from a Non-Registered Vendor.

What is Notional VAT?

Company A who is a VAT Vendor is entitled to claiming an input tax deduction on purchases of second-hand goods acquired from Mr. B who is a non-registered VAT vendor. The VAT Act allows Company A, a notional tax deduction (15/115 of the purchase price) provided that certain requirements are met.

“Second-hand goods”

The first requirement would be to ascertain whether the goods in question meet the definition of second-hand goods as defined by the Act. Section 1(1) of the VAT Act, defines second-hand goods as, “goods which were previously owned and used”, but not including –

Animals
Gold coins issued by the Reserve Bank in terms of section 14 of the South African Reserve Bank Act

Claiming the Notional deduction

When claiming the input tax deduction, a VAT264 form must be completed by both the purchaser and the seller. The following records must also be retained:

The name and address of the person who sold the goods (Mr. B)
As verification of his name, his identity number, or if the purchase is R1000 or more, a photocopy of his identity document.
Where the seller is not a natural person, the company’s or close corporation’s name and legally allocated registration number with reference to its business letterhead or other similar document and the identity number of its representative. Where the supply is R1000 or more, photocopies of such letterhead or other documentation indicating the name and registration number, as well as a photocopy of the representative’s identity document
The date of the purchase
A description of the goods
The quantity, mass, or volume of the goods
The purchase price
Proof of payment of the purchase price

In addition to the above, the notional deduction can only be claimed by a vendor who is a resident of South Africa.

How much should be claimed?

The deduction should be claimed at 15/115 x (the lesser of the open market value and the consideration). It is important to note that the deduction is allowed up to the extent that payment for the supply has been made, as per Section 16(3)(a)(ii) (aa) of the VAT Act.