Abstract

A vendor engaged in making both taxable and non-taxable supplies may only claim input tax relief in respect of all the goods and services acquired by the vendor to the extent that such goods or services are utilised by the vendor to make taxable supplies. To the extent that the relevant goods and services are utilised by the vendor for the dual purpose of making taxable and non-taxable supplies, the vendor is required to apportion the input tax in accordance with the apportionment ratio prescribed by SARS. The apportionment ratio is prescribed by SARS in Binding General Ruling 16 (BGR 16).
Simply put, the ratio is the value taxable supplies divided by the value of all other supplies or non-supplies made by the vendor. The denominator specifically includes interest (exempt), dividends (out of scope) and capital gains derived on the supply of capital assets. BGR 16 provides for certain exclusions (capital gains derived on the supply of capital goods) and so-called adjustments in other cases, including in relation to interest and dividends. While capital gains are excluded entirely, interest must be included as follows, interest received/accrued × (prime rate – JIBAR), and dividends on the following basis, namely 3-year moving average of dividends received/accrued × (prime rate – JIBAR).
The crisp question is: how are distributions derived by a vendor qua beneficiary that comprise interest, dividends and capital gains to be dealt with for the purposes of applying BGR 16?
The premise of this article is that the conduit principal should be applied where income derived is distributed in the same year in which the income is derived by the trust and the receipts should be dealt with for the purposes of BGR 16 as if derived by the vendor qua beneficiary, that is, the receipts retain their characterisation as interest, dividends and capital gains. This is how such distributions are dealt with from an income tax and capital gains tax perspective.
SARS has seemingly adopted a different view and argue that the conduit principal does not apply to VAT and the distributions should fall to be dealt with for the purpose of BGR 16 on the same basis as profit shares derived by members/partners from joint venture or partnership arrangements. A profit share derived form a joint venture/partnership is required to be accounted for in the denominator of the prescribed apportionment ratio on the following basis: 3-year moving average of a profit share received/accrued during the year × (prime – JIBAR).