Summary TAX3701Solution May 2018 paper2

SOLUTION TO QUESTION 1 May/June 2018
Part A Paper 2
Edu Blue (Pty) Ltd
VAT Payable/refundable 31 January 2018 (2 month period)

VAT Output

Direct export - zero rated -
Local sales - 1 785 000 x 15/115 232 826
Creche - exempt -

Total Output tax 232 826

VAT Input

Purchase of trading stock - 337 300 x 15% 50 595
(Earlier of invoice or payment)
Notional input tax on furniture - 40 000 x 15/115 5 217
(timing of transaction is upon payment)
Salaries - not carrying a trade -
Fuel - zero rated -
Entertainment - VAT denied -
Campaign - 20 000 x 15/115 2 609
Rentals - 50 000 x 2 x 15/115 x90% 11 739
Cleaning services - 8 400 x 15%x90% 1 134
Instalment credit agreement (4 400 x 12 - 13800) x 15/115 5 087
Interest exempt -
Total Input tax 76 381
Vat payable (Vat output less Vat input) 156 445

Part b

The requirements of a transaction being zero rated are:

1. Seller must be VAT vendor.
2. Purchase must be VAT vendor.
3. All assets necessary for going concern must be supplied.
4. Tax invoice must have VAT at 0%.
5. Agreement must state VAT at 0%.
6. Agreement must state going concern sale.
7. The operation must be an income earning activity on date of transfer.