Value-added tax
256. VAT and motor cars
February 1996

Most "vendors" should be aware that, in general, you may not claim an input tax credit for the VAT paid on the acquisition of a motor ear (with certain exceptions being defined as a motor vehicle having three or more wheels, normally used on public roads and constructed or adapted wholly or mainly for the carriage of passengers). The acquisition can be by way of purchase, lease, rental or even casual hire. VAT inspectors look out for these items. The purpose for which the vehicle was acquired or even the purpose for which it will be used is irrelevant. Also irrelevant is the registration classification, e.g. a double cab commercial vehicle was found (in a recent court case) to have been constructed mainly for the carriage of passengers and was thus a motor car as defined.

On the other hand the VAT included in the cost of servicing, insurance, tyres, parts and oils can be claimed. Also the VAT included in the maintenance element in a full maintenance lease can be claimed as long as this cost is separately identified and invoiced.

What about the cost of the immobiliser and radio bought with the motor car? If these items are included in the overall cost of the motor car, no deduction can be claimed. If these items are standard equipment as part of the motor car, it is probable that again no claim can be made even if separately invoiced.

On the other hand, if these items are separately invoiced as optional extras or acquired and fitted subsequent to the purchase of the motor car, an input tax deduction can be claimed.

There is a view that a ear radio falls within the definition of "entertainment" and, in any event, would therefore not qualify for input tax deduction. Although the definition of entertainment is very wide and possibly could encompass the purchase of a ear radio, we doubt whether this was intended by Parliament!

Zeller Karro

VAT Act S 10(g), VAT Act S 18(i) and VAT Act S 17(2)(c)