In determining the implications of the change in the extent of taxable use of capital goods for Ms. C, we need to work through the VAT implications stemming from the change in her business activities.
Key Concepts to Consider
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Taxable vs. Exempt Supplies: The VAT system provides input tax credits based on the actual use of goods and services related to taxable supplies. A business that makes both taxable and exempt supplies needs to apportion the input tax based on the ratio of taxable use.
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Change in Use and Adjustment: When there is a change in the extent of use (i.e., from 80% taxable to 60% taxable), a vendor may need to make an adjustment for the input tax previously claimed. This adjustment is intended to ensure that input tax is only claimed for the extent to which goods and services are used for making taxable supplies.
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Adjustment Period: The adjustment is typically calculated over a period determined by the SARS designated adjustment period (which is generally 5 years for fixed assets). For capital goods, if the percentage of taxable use decreases, an adjustment is required for the remaining adjustment period.
Calculating the Adjustment
1. Adjustment for the Building:
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Original Position:
- Input Tax Deduction: R134,400
- Taxable Use: 80%
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New Position:
- Taxable Use: 60%
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Change in Taxable Percentage: \[ \text{Change} = 80% - 60% = 20% \]
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Remaining Adjustment Period: \[ \text{Periods Remaining} = 5 \text{ years} - \text{(completed years since acquisition)} \] Ms. C has used the building since March 2008 to February 2022, which accounts for 14 years. Thus, there’s no remaining adjustment period.
Since the adjustment period has elapsed, Ms C does not need to make any further adjustment to the original input tax deduction for the building as there are no remaining adjustment periods left.
2. Adjustment for the Computer System:
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Original Position:
- Input Tax Deduction: R5,305
- Taxable Use: 80%
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New Position:
- Taxable Use: 60%
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Change in Taxable Percentage: \[ \text{Change} = 80% - 60% = 20% \]
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Remaining Adjustment Period: \[ \text{Periods Remaining} = 5 - 1 = 4 \text{ years (if acquired in March 2009)} \]
For the computer system, which is still within its adjustment period, Ms. C will need to calculate the adjustment.
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Input Tax Deduction Amount Subject to Adjustment: \[ \text{Input Tax} = R5,305 \text{ (on the original deduction when taxable at 80%)} \]
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Proportion subject to Adjustment: \[ \text{Adjustment Amount} = R5,305 \times \frac{20%}{80%} = R1,326.25 \]
Because this adjustment is required over the remaining 4 years: \[ \text{Annual Adjustment} = \frac{R1,326.25}{4} = R331.56 \]
This annual adjustment needs to be reflected in Ms. C's VAT returns for each of the subsequent 4 tax periods.
Summary
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For the building, no adjustment is required since the adjustment period has elapsed.
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For the computer system, an adjustment of R331.56 per tax period is required for the next 4 periods due to the decrease from 80% to 60% in the percentage of taxable use.
Conclusion
Ms. C needs to make the necessary adjustments to her VAT claims based on the decrease in taxable use of her assets as described. The VAT implications of her business's changing nature must be captured in her future VAT returns to remain compliant with VAT regulations.