TAX TALK – EXAMPLES OF VAT EXEMPT SUPPLIES

In case you have forgotten the general rule about exempt supplies remember the following: If you sell goods or services that are exempt from VAT you cannot charge your customers VAT when they buy from you but your suppliers will charge you VAT when you buy from them if they are VAT registered.

Let us look at some practical examples and see if you recognize them when you spend you money. The salary you receive for rendering services to your employer is not subject to VAT because you don’t carry on a business when another person employs you.You can therefore not register for VAT in respect of the remuneration received for services rendered to your employer.The assessment rates charged by your local municipality are exempt from VAT.Check your next municipal statement to verify this.You therefore don’t pay any VAT on these charges to the municipality.The letting of long-term residential accommodation is exempt from VAT.Your landlord can therefore not charge you VAT on these rentals.Short-term residential accommodation is subject to VAT and, therefore, when you book into a hotel or pension and they are VAT-registered, you must expect to see VAT on your invoice.Financial services are defined as exempt supplies in the Value-Added Tax Act.Amongst other things the definition includes the interest paid on money borrowed.The lender can therefore not raise VAT on the interest charged when lending money.Banks however also render other services to you in addition to charging you interest on your overdraft and on these services they must raise VAT.Education services and hostel facilities provided by any school or university is exempt from VAT and therefore school and student fees are not subject to VAT.The education services and hostel facilities made available by any institution established for the education or training of physically or mentally handicapped individuals are also exempt from VAT.The VAT exempt status of education or training for the physically or mentally handicapped seems very strange if one takes into account that the supply of goods or services by charitable institutions such as children’s homes or old ages home are zero-rated for VAT purposes.Medical or paramedical services rendered by any person registered under the Medical or Dental Professions Act is also exempt from VAT.This means your doctor should not be charging VAT on his consultation services.He may however charge you VAT on medicine he sells to you like any other pharmacy would have to.The services and accommodation supplied by a hospital are also exempt from VAT and therefore a hospital cannot raise VAT for your stay there during your illness.Any local public transport service (for example by a taxi or bus) is also exempt from VAT and therefore your fare to make use of this type of transport may not include VAT.The supply of fringe benefits to employees is exempt from VAT.This means that the employer is not allowed to claim any VAT paid to make the fringe benefit to the employee available from the Receiver.There are some other examples of exempt supplies that are not covered in this article.In this series of articles, Cameron Kotz, the Tax Partner at Ernst and Young discusses some topical tax issues for our readers.Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.The salary you receive for rendering services to your employer is not subject to VAT because you don’t carry on a business when another person employs you. You can therefore not register for VAT in respect of the remuneration received for services rendered to your employer. The assessment rates charged by your local municipality are exempt from VAT. Check your next municipal statement to verify this. You therefore don’t pay any VAT on these charges to the municipality. The letting of long-term residential accommodation is exempt from VAT. Your landlord can therefore not charge you VAT on these rentals. Short-term residential accommodation is subject to VAT and, therefore, when you book into a hotel or pension and they are VAT-registered, you must expect to see VAT on your invoice. Financial services are defined as exempt supplies in the Value-Added Tax Act. Amongst other things the definition includes the interest paid on money borrowed. The lender can therefore not raise VAT on the interest charged when lending money. Banks however also render other services to you in addition to charging you interest on your overdraft and on these services they must raise VAT. Education services and hostel facilities provided by any school or university is exempt from VAT and therefore school and student fees are not subject to VAT. The education services and hostel facilities made available by any institution established for the education or training of physically or mentally handicapped individuals are also exempt from VAT. The VAT exempt status of education or training for the physically or mentally handicapped seems very strange if one takes into account that the supply of goods or services by charitable institutions such as children’s homes or old ages home are zero-rated for VAT purposes. Medical or paramedical services rendered by any person registered under the Medical or Dental Professions Act is also exempt from VAT. This means your doctor should not be charging VAT on his consultation services. He may however charge you VAT on medicine he sells to you like any other pharmacy would have to. The services and accommodation supplied by a hospital are also exempt from VAT and therefore a hospital cannot raise VAT for your stay there during your illness. Any local public transport service (for example by a taxi or bus) is also exempt from VAT and therefore your fare to make use of this type of transport may not include VAT. The supply of fringe benefits to employees is exempt from VAT. This means that the employer is not allowed to claim any VAT paid to make the fringe benefit to the employee available from the Receiver. There are some other examples of exempt supplies that are not covered in this article. In this series of articles, Cameron Kotz, the Tax Partner at Ernst and Young discusses some topical tax issues for our readers. Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.