VAT Apportionment: BGR 16 and Distributions from Trusts

• Jurisdiction: South Africa
• DOI: 10.10520/ejc-btclq_v16_n2_a4
• Author: Des Kruger Kruger
• Pages: 16-24
• Date: 01 June 2025
• Published date: 01 June 2025
• Published By: Siber Ink

16 © Juta and Company (Pty) Ltd

VAT Apportionment:

BGR 16 AND DISTRIBUTIONS FROM TRUSTS

DES KRUGER

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

specif‌i cally 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 benef‌i -

ciary 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 benef‌i ciary, 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 prof‌i t shares derived by

members/partners from joint venture or partnership arrangements. A prof‌i t

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 prof‌i t share received/accrued during the

year × (prime–JIBAR).

Introduction

A vendor is entitled to claim full input tax relief in respect of the VAT

incurred on the acquisition of any goods or services if such goods or services

have been acquired by the vendor wholly for the purpose of consumption,

2025 16(2) BTCLQ 16

.