Select Page

1. Can Payment in the Form of a Loan Account Constitute Payment for VAT Purposes?

By Anton Lockem and Shepstone &Wylie Tax team

This is a review of Claremont Library Development Company v CSARS (VAT1247) [2016] ZATC 6. The facts of this case are briefly illustrated as follows:

  • CLDC is a wholly owned subsidiary of Corevest.
  • Corevest developed residential and commercial property on land owned by CLDC.
  • Corevest funded CLDC’s cash flow requirements on loan account.
  • Corevest issued a tax invoice to CLDC in respect of the development of the residential component of the development (R82 million inclusive of VAT at 14%).
  • CLDC then claimed an input tax deduction (R10 million).
  • Once CLDC obtained the R10 million from SARS, it paid the R10 million to Corevest.
  • Corevest then paid the output tax in the same amount.
  • The remaining liability of R72 million was credited from Corevest’s loan account to CLDC.
  • SARS argued that the remaining liability under the tax invoice that was credited to Corevest’s loan account to the taxpayer did not constitute “payment” of the consideration as it remained a debt.

Issue in dispute

Section 22(3) of the VAT Act provides that where a vendor has claimed an input tax deduction in respect of the acquisition of a taxable supply, but has not made payment of the full consideration in respect of such supply within 12 months, that vendor shall be liable to account for deemed output tax equal to the tax fraction of the outstanding amount not paid.

The legal question in this case was therefore, having regard to section 22(3) of the VAT Act, whether the crediting of a loan account constitutes payment of consideration?

Applicable Law

CLDC relied on the decision of Commissioner SARS v Scribante Construction (Pty) Ltd, in which a dividend declared as interest, which was credited to shareholders’ loan accounts with the company, was found to constitute a payment by the company to the shareholders and as an actual deposit.

CLDC also relied on the case of Commissioner for Inland Revenue v Guiseppe Brollo Properties (Pty) Ltd in terms of which the enquiry turns on the overriding purpose of the loan account liability incurred.


The purpose of section 22(3) of the VAT Act is to prevent deliberate manipulation to create a tax benefit. It therefore does not aim to influence bona fide transactions.


It was held that the purpose of the loan liability incurred by CLDC was to discharge the debt owed to Corevest. With regards to what constitutes consideration, the court found that where a payment amounts to the discharge of an obligation to another, there is no reason as to why an obligation under an invoice may not be discharged through the creation of another liability such as one under a loan.

The crediting of Corevest’s loan by CLDC therefore amounted to payment of consideration in respect of the taxable supply invoiced.