18. Change in use adjustments
[Heading substituted by section 103 of Act 32 of 2004]
(1) Subject to the provisions of section 8(2), where-
(a) goods or services have been supplied to or imported by a vendor; or
(b) goods have been manufactured, assembled, constructed or produced by him; or
(c) goods or services were deemed by subsection (4) to have been supplied to him,
(excluding goods or services to the extent that, in respect of the acquisition of which by the vendor a deduction of input tax was denied by section 17(2) or would have been denied if that section had been applicable prior to the commencement date) and such goods or services were acquired, manufactured, assembled, constructed or produced by such vendor wholly or partly for the purpose of consumption, use or supply in the course of making taxable supplies or such goods were held or applied for that purpose, such goods or services shall-
(i) if they are subsequently applied by him (otherwise than in the circumstances contemplated in section 8(9)) wholly for a purpose other than the said purpose; or
(ii) if they are subsequently applied by him wholly for a purpose in respect of which, if such goods or services had been acquired by him at the time of such application, a deduction of input tax would have been denied in terms of section 17(2)(a) or (c),
be deemed to have been supplied by him by way of a taxable supply by him in the course of his enterprise.
[Subsection (1) amended by section 32 of Act 136 of 1991 and section 34 of Act 27 of 1997]
(2) Where-
(a) capital goods or services have been supplied to or imported by a vendor; or
[Paragraph (a) substituted by section 23 of Act 136 of 1992]
(b) capital goods have been manufactured, assembled, constructed or produced by him; or
[Paragraph (b) substituted by section 23 of Act 136 of 1992]
(c) capital goods or services were deemed by subsection (4) to have been supplied to him,
[Paragraph (c) substituted by section 23 of Act 136 of 1992]
(excluding goods or services to the extent that, in respect of the acquisition of which by the vendor a deduction of input tax was denied by section 17(2) or would have been denied if that section had been applicable prior to the commencement date) and such goods or services were acquired, manufactured, assembled, constructed or produced by such vendor wholly or partly for the purpose of consumption, use or supply in the course of making taxable supplies or such goods were held or applied for that purpose, such goods or services shall, if the extent of the application or use of such goods or services in the course of making taxable supplies (in respect of which, if such goods or services had been acquired at the time of such application or use, a deduction of input tax would not have been denied in terms of section 17(2)(a)) is subsequently reduced in relation to their total application or use, be deemed to have been supplied by him by way of a taxable supply by him in the course of his enterprise at the time at which such reduction is deemed by subsection (6) to take place:
Provided that this subsection does not apply to –
(i) capital goods or services which have an adjusted cost of less than R40 000 (excluding tax) or where such goods or services were deemed to be supplied to the vendor by subsection (4) if the amount which was represented by ‘B’ in the formula contemplated in that subsection was less than R40 000 when such goods or services were deemed to be supplied to such vendor;
[Paragraph (i) amended by section 49 of Act 9 of 2006]
(ii) capital goods or services acquired by a public authority or public entity listed in Part A or C of Schedule 3 to the Public Finance Management Act, 1999 (Act No. 1 of 1999), if the goods or services were acquired prior to 1 April 2005 or if an input tax deduction in respect thereof was denied under proviso (iv) to section 18(4); or
[Paragraph (ii) amended by section 49 of Act 9 of 2006]
(iii) capital goods or services acquired by a municipality, if the goods or services were acquired prior to 1 July 2006 or if an input tax deduction in respect thereof was denied in terms of paragraph (v) of the proviso to section 18(4).
[Paragraph (iii) added by section 49 of Act 9 of 2006]
[Subsection (2) amended by section 32 of Act 136 of 1991, section 34 of Act 27 of 1997, section 174 of Act 45 of 2003 and section 109 of Act 31 of 2005 effective on 1 April 2005]
(3) Notwithstanding anything in this section, to the extent that any vendor has or is deemed to have granted a benefit or advantage to an employee or the holder of any office as contemplated in paragraph (i) of the definition of “gross income” in section 1 of the Income Tax Act, read with the Seventh Schedule to that Act, and such benefit or advantage consists of a supply of goods or services, the granting of that benefit or advantage shall be deemed to be a supply of goods or services made by the vendor in the course of an enterprise carried on by the vendor: Provided that this subsection shall not apply to any such benefit or advantage to the extent that it has arisen by virtue of any supply of goods or services which is an exempt supply in terms of section 12 of this Act or is a supply which is charged with tax at the rate of zero per cent in terms of section 11 of this Act or is a supply of entertainment: Provided further that this subsection shall not apply to any such benefit or advantage to the extent that it is granted by the vendor in the course of making exempt supplies.
[Subsection (3) substituted by section 32 of Act 136 of 1991]
(4) Where-
(a)
(i) goods or services have been supplied to or imported by a person prior to the commencement date; or
(ii) goods have been manufactured, assembled, constructed or produced by him prior to the commencement date,
and such goods or services were acquired, manufactured, assembled, constructed or produced or applied by such person wholly for purposes other than that of consumption, use or supply in the course of making supplies in the course of an activity which was an enterprise or would have been an enterprise if section 1 had been applicable prior to the date of promulgation of this Act or for a purpose in respect of which a deduction of input tax in respect of such goods or services would have been denied in terms of section 17(2) if that section had been applicable prior to the commencement date; or
[Paragraph (a) amended by section 34 of Act 27 of 1997]
(b)
(i) goods or services have been supplied to or imported by a person on or after the commencement date and tax has been charged in respect of such supply or importation; or
[Subparagraph (i) substituted by section 18 of Act 20 of 1994]
(ii) goods have been manufactured, assembled, constructed or produced by him on or after the commencement date and tax has been charged in respect of the supply of goods or services acquired by him for the purpose of such manufacturing, assembling, construction or production; or
[Subparagraph (ii) substituted by section 18 of Act 20 of 1994]
(iii) goods or services are deemed by subsection (1) or section 8(2) to have been supplied by him,
[Subparagraph (iii) substituted by section 18 of Act 20 of 1994]
and no deduction has been made in terms of section 16(3) in respect of or in relation to such goods or services; or
[Paragraph (b) amended by section 34 of Act 27 of 1997]
(c) second-hand goods situated in the Republic have been supplied (otherwise than under a taxable supply) to a person under a sale on or after the commencement date by a resident of the Republic and no deduction has been made in terms of section 16 (3) in respect of such second-hand goods; and
[Paragraph (c) inserted by section 18 of Act 20 of 1994]
such goods or services are subsequent to the commencement date applied in any tax period by that person or, where he is a member of a partnership, by the partnership, wholly or partly for consumption, use or supply in the course of making taxable supplies (other than taxable supplies in respect of which, if such goods or services had been acquired at the time of such application, a deduction of input tax would have been denied in terms of section 17(2)), those goods or services shall be deemed to be supplied in that tax period to that person or the partnership, as the case may be, and the Commissioner shall allow that person or the partnership, as the case may be, to make a deduction in terms of section 16(3) of an amount determined in accordance with the formula
A x B x C x D,
in which formula-
“A” represents the tax fraction;
“B” represents the lesser of-
(i) the adjusted cost (including any tax forming part of such adjusted cost) to the vendor of the acquisition, manufacture, construction or production of those goods or services: Provided that where the goods or services were acquired under a supply in respect of which the consideration in money was in terms of section 10(4) deemed to be the open market value of the supply, the adjusted cost of those goods or services shall be deemed to include such open market value to the extent that it exceeds the consideration in money for that supply; or
[Subparagraph (i) substituted by section 32 of Act 97 of 1993 and section 174 of Act 45 of 2003]
(ii) the open market value of the supply of those goods or services at the time when the supply is deemed to be made:
“C” represents the ratio that, immediately after the supply so deemed to be made, the intended use of the goods or services (as contemplated in section 17(1)) in the course of making taxable supplies (other than taxable supplies in respect of which, if such goods or services had been acquired at the time of such application, a deduction of input tax would have been denied in terms of section 17(2)) bears to the total intended use of those goods or services, expressed as a percentage: Provided that where the intended use of goods or services in the course of making taxable supplies (other than taxable supplies in respect of which, if such goods or services had been acquired at the time of such application, a deduction of input tax would have been denied in terms of section 17(2)) is equal to not less than 95 per cent of the total intended use of such goods or services such percentage shall be deemed to be 100 per cent; and
[Definition of “C” substituted by section 34 of Act 27 of 1997 and amended by section 89 of Act 53 of 1999]
“D” where paragraph (c) applies, represents the ratio that the amount paid, which payment reduces or discharges any obligation (whether an existing obligation or an obligation which will arise in future) in respect of or consequent upon, whether directly or indirectly, the consideration in money for the supply of second-hand goods, bears to the total consideration in money, expressed as a percentage:
[Definition of “D” substituted by section 93 of Act 30 of 1998 and section 138 of Act 24 of 2011 with effect from 10 January 2012]
Provided that-
(i) paragraph (b) of this subsection shall not apply where a vendor has, only as a result of not complying with the provisions of section 16(2), not been entitled to make a deduction of input tax in terms of section 16(3);
(ii) ..…….
[Paragraph (ii) of the proviso deleted by section 149 of Act 22 of 2012 effective on 10 January2012]
(iii) ……….
[Paragraph (iii) of the proviso amended by section 103 of Act 32 of 2004 and section 49 of Act 9 of 2006 and deleted by section 149 of Act 22 of 2012 effective on 10 January2012]
(iv) this subsection shall not apply where a constitutional institution listed in Schedule 1 or a public entity listed in Part A or C of Schedule 3 to the Public Finance Management Act, 1999 (Act No. 1 of 1999), is re-classified within the Schedules to the Public Finance Management Act, 1999 (Act No. 1 of 1999) and applies those goods or services for the purposes of consumption, use or supply in the course of making taxable supplies; or
[Paragraph (iv) added by section 103 of Act 32 of 2004 and amended by section 49 of Act 9 of 2006]
(v) this subsection shall not apply where a municipality applies goods or services acquired before 1 July 2006 for the purposes of consumption, use or supply in the course of making taxable supplies on or after 1 July 2006.
[Paragraph (v) added by section 49 of Act 9 of 2006]
[Subsection (4) amended by section 32 of Act 136 of 1991, section 23 of Act 136 of 1992, section 18 of Act 20 of 1994 and section 34 of Act 27 of 1997]
(5) Where-
(a) capital goods or services have been supplied to or imported by a vendor; or
(b) capital goods have been manufactured, assembled, constructed or produced by him; or
(c) capital goods or services are deemed by subsection (4) to have been supplied to him,
and such goods or services were acquired, manufactured, assembled, constructed or produced or applied by such vendor partly for the purpose of consumption, use or supply in the course of making taxable supplies (other than taxable supplies in respect of which, if such goods or services had been acquired at the time of such application, a deduction of input tax would have been denied in terms of section 17(2)) or of making supplies in the course of an activity which was an enterprise or would have been an enterprise if section 1 had been applicable prior to the date of promulgation of this Act (other than supplies in respect of which, if such goods or services had been acquired at the time of such application, a deduction of input tax would have been denied in terms of section 17(2) if that section had been applicable prior to the commencement date) such goods or services shall, if the extent of the application or use of such goods or services in the course of making taxable supplies (other than taxable supplies in respect of which, if such goods or services had been acquired at the time of such application, a deduction of input tax would have been denied in terms of section 17(2)) is subsequent to the commencement date increased in relation to their total application or use, be deemed to be supplied to him, and the Commissioner shall allow the vendor to make a deduction in terms of section 16(3), in the tax period during which such increase is deemed by subsection (6) to take place, of an amount determined in accordance with the formula
A x B x (C – D),
in which formula-
“A” represents the tax fraction;
“B” represents the lesser of-
(i)
(aa) the adjusted cost (including any tax forming part of such adjusted cost) to the vendor of the acquisition, manufacture, assembly, construction or production of those goods or services: Provided that where the goods or services were acquired under a supply in respect of which the consideration in money was in terms of section 10(4) deemed to be the open market value of the supply, the adjusted cost of those goods or services shall be deemed to include such open market value to the extent that it exceeds the consideration in money for that supply; or
[Subparagraph (aa) substituted by section 32 of Act 136 of 1991, section 32 of Act 97 of 1993 and section 174 of Act 45 of 2003]
(bb) where goods or services were deemed by subsection (4) to have been supplied to the vendor, the amount which was represented by “B” in the formula contemplated in that subsection when such goods or services were deemed to be supplied to the vendor; or
(cc) where the vendor was at some time after the acquisition of the goods or services required to make an adjustment contemplated in subsection (2) or this subsection the amounts represented by “A” in the formula contemplated in section 10(9) or by “B” in the formula contemplated in this subsection respectively, in the most recent adjustment made under subsection (2) or this subsection by the vendor prior to such supply of goods or services so deemed to be made; and
(ii) the open market value of the supply of those goods or services at the time any increase in the extent of the use or application of the goods or services is deemed by subsection (6) to take place;
“C” represents the percentage that, during the 12 month period during which the increase in use or application of the goods or services is deemed to take place, the use or application of the goods or services for the purposes of making taxable supplies (other than taxable supplies in respect of which, if such goods or services had been acquired at the time of such application, a deduction of input tax would have been denied in terms of section 17(2)) was of the total use or application of the goods: Provided that where the said percentage does not exceed the percentage contemplated in “D” by more than 10 per cent of the total use or application, the said percentage shall be deemed to be the percentage determined in “D”;
[Definition of “C” amended by section 32 of Act 136 of 1991 and section 34 of Act 27 of 1997]
“D” represents the percentage that the use or application of the goods or services for the purposes of making taxable supplies (other than taxable supplies in respect of which, if such goods or services had been acquired at the time of such application, a deduction of input tax would have been denied in terms of section 17(2)) was of the total use or application of such goods or services determined in terms of section 17(1), section 10(9) or subsection (4) of this section or this subsection, whichever was applicable in the period immediately preceding the 12 month period contemplated in “C”:
[Definition of “D” substituted by section 34 of Act 27 of 1997]
Provided that –
(i) this subsection does not apply to-
(aa) capital goods or services which cost less than R40 000 (excluding tax) or where such goods or services were deemed to be supplied to the person by subsection (4) if the amount which was represented by “B” in the formula contemplated in that subsection was less than R40 000 when such goods or services were deemed to be supplied to such person;
[Subparagraph (aa) amended by section 49 of Act 9 of 2006]
(bb) capital goods or services acquired by a public authority or public entity listed in Part A or C of Schedule 3 to the Public Finance Management Act, 1999 (Act No. 1 of 1999, prior to 1 April 2005, or if an input tax deduction in respect thereof was denied under proviso (iv) to section 18(4); or
[Subparagraph (bb) amended by section 49 of Act 9 of 2006]
(cc) capital goods or services acquired by a municipality prior to 1 July 2006, or if an input tax deduction in respect thereof was denied in terms of paragraph (v) of the proviso to section 18(4);
[Subparagraph (cc) added by section 49 of Act 9 of 2006]
(ii) ……….
[Para (ii) of the proviso deleted by section 149 of Act 22 of 2012 effective on 10 January 2012]
[Subsection (5) amended by section 32 of Act 136 of 1991, section 23 of Act 136 of 1992, section 34 of Act 27 of 1997 and section 109 of Act 31 of 2005]
(6) For the purposes of subsections (2) and (5), any reduction or increase in the extent of the application or use of goods or services shall be deemed to take place on the last day of the vendor’s ‘year of assessment’, as defined in section 1 of the Income Tax Act, or, if the vendor is not a taxpayer as defined in that section, on the last day of February: Provided that where a vendor who is not a taxpayer as so defined draws up annual financial statements in respect of a year or other period ending on a date other than the last day of February, the reduction or increase in the extent of the application or use of goods or services shall be deemed to take place on such first-mentioned date: Provided further that where a vendor ceases to be a vendor prior to any day contemplated in this subsection, any reduction or increase in the extent of the application or use of goods or services shall be deemed to take place immediately before that vendor ceased to be a vendor.
[Words preceding the proviso substituted by section 135 of Act 25 of 2015 effective on 8 January 2016]
[Subsection (6) substituted by section 92 of Act 17 of 2009]
(7) For the purposes of subsections (2) and (5) of this section, the extent of the application or use of any goods or services for the purpose of making taxable supplies shall be determined with reference to the application or use of such goods or services during the 12 month period ending on the day any reduction or increase in the extent of the application or use of such goods or services is deemed by subsection (6) to have taken place: Provided that where any goods or services are acquired, manufactured, assembled, constructed or produced by a vendor or are deemed under subsection (4) to have been supplied to that vendor during such 12 month period, the extent of the application or use of such goods or services shall be determined with reference to the period ending on the day contemplated in subsection (6) and commencing on the date such goods or services are acquired, manufactured, assembled, constructed or produced by the vendor or are deemed to be supplied to the vendor under subsection (4): Provided further that where the period between the commencement date and the date contemplated in subsection (6) is less than a 12 month period it shall for the purposes of this section be deemed to be a 12 month period.
(8) Where a deduction of an amount contemplated in paragraph (b) of the definition of “input tax” in section 1 has been made by any vendor in respect of the sale to him of any second-hand goods and subsequently-
(a) that sale is cancelled; or
(b) the nature of that sale is fundamentally varied or altered; or
(c) the previously agreed consideration for that sale is reduced; or
(d) the second-hand goods or part of the second-hand goods sold are returned to the supplier,
and, as a result of the occurrence of one or more of the abovementioned events, the input tax actually deducted in relation to such sale exceeds the input tax properly deductible by the vendor, either the amount of that excess shall be deemed to be tax charged in relation to a taxable supply made by that vendor in the tax period during which the said event has occurred, at the rate of tax which applied when the said deduction was made, or the amount of input tax deducted in terms of section 16 (3) in the said tax period shall be reduced by the amount of the said excess.
[Subsection (8) added by section 18 of Act 20 of 1994]
(9) Where a vendor has acquired or imported a motor car (in respect of which input tax has been denied in terms of section 17(2)(c)) and has subsequently converted that motor car into a game viewing vehicle or a hearse, as contemplated in paragraph (e) or (f) of the definition of ‘motor car’ in section 1, that motor car is deemed to be supplied in that tax period to that vendor, and the Commissioner shall allow that vendor to make a deduction in terms of section 16(3) of an amount equal to the tax fraction of the lesser of-
(a) the adjusted cost; or
(b) the open market value,
of that motor car on the day before that conversion: Provided that this deduction excludes any amount of input tax which qualifies or has qualified for a deduction under another provision of this Act.
[Subsection (9) added by section 103 of Act 32 of 2004]
(10) Where-
(a) goods or services have been supplied by a vendor at the zero rate in terms of sections 11(1)(c), 11(1)(m), 11(1)(mA) or 11(2)(k) to a vendor, that is a customs controlled area enterprise or an SEZ operator; or
(b) goods have been imported into the Republic by a vendor, being a customs controlled area enterprise or an SEZ operator and those goods are exempt from tax in terms of section 13(3),
and where a deduction of input tax would have been denied in terms of section 17(2), or to the extent that such goods or services are not wholly for consumption, use or supply within a customs controlled area in the course of making taxable supplies by that vendor, that is a customs controlled area enterprise or an SEZ operator, those goods or services shall be deemed to be supplied by the vendor concerned in the same tax period in which they were so acquired, in accordance with the formula:
A × B
in which formula-
‘A’ represents the rate of tax levied in terms of section 7(1); and
‘B’ represents-
(i) the cost to the vendor of the acquisition of those goods or services which were supplied to him or her in terms of sections 11(1)(c), 11(1)(m), 11(1)(mA) or 11(2)(k); or
(ii) the value to be placed on the importation of goods into the Republic as determined in terms of section 13(2).
[Subsection (10) added by section 103 of Act 32 of 2004, amended by section 109 of Act 31 of 2005, substituted by section 85 of Act 20 of 2006, amended by section 149 of Act 22 of 2012 and substituted by section 27 of Act 16 of 2016 effective on the date on which the Special Economic Zones Act, 2014 (Act No. 16 of 2014), came into operation, 9 February 2016]