Tax Issues for SMME - cdn.ymaws.com€¦ · Tax Issues for SMME Presented by Herman Van Dyk CA(SA), RA, MCom(SA and international tax) Herman is a senior lecturer at the Potchefstroom

Tax Issues for SMME

Presented by

Herman Van Dyk

CA(SA), RA, MCom(SA and international tax)

Herman is a senior lecturer at the Potchefstroom Campus of the North-West University (NWU)

where he is the leader of the Programme for Taxation. He lectures taxation to honours

chartered accountancy students. He received a prestige institutional teaching excellence award

during 2013. He was awarded the Rapport Top Lecturer Award for being the most inspirational

lecturer in the Faculty of Economic and Management Sciences in 2012.

Programme: 08:15 – 08:55 Registration 09:00 – 10:30 Tax Issues for SMME 10:30 – 10:50 Tea Break (20 mins) 10:50 – 13:00 Tax Issues for SMME

13:00 Conclusion

SAIT TAX ISSUES SMMEsHerman van Dyk

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Welcome2016 Tax Issues for SMME

Presented by Herman van Dyk

Sponsored by:

Upcoming CPD Events


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Upcoming CPD EventsRefer to our website for all upcoming events

• Planning for HNI • Employees Tax, Payroll and

e@syfile• Customs Seminar

2016 Tax Issues for SMME


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Course overview

Background and classification of SMMEs

Tax incentives, concessions and electives

Tax risks and implications

Business structure: which entity to use

Small, medium and micro enterprises (SMMEs)• No universal definition• Broad range of businesses from established entrepreneurial

businesses to "survivalist" self-employed persons• Turnover is the most popular way to define• Generally less than R20 million in turnover


4

Davis Tax Committee's view

Importance of SMMEs

• SMMEs generally create employment:

• Opportunity from growth (large businesses all started small)

• Broadens the tax base


5

Tax contribution

• CIT: 19% of revenue collected in 2014/2015• Bulk of CIT paid by large companies• SMMEs also contribute to PIT and VAT

36%

19%

27%

18%

2014/2015 tax collection: R986 billion

PIT CIT VAT Other

Incorporating the informal sectorSection 45 of the TAA

A SARS official may, for the purpose of the administration of a tax act and without prior notice, conduct an inspection at premises where he has reasonable belief that a trade or enterprise is being carried on to determine• the identity of the person occupying the premises• whether such person is registered for tax, or• whether the person retains records, books of account or

documents in the form as required by the act


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Course overview





Tax incentives, concessions and electives available to SMMEs• Small business corporations• CGT exclusion for small business assets• Turnover tax• Venture capital companies• Small business funding enterprises• Employment incentives


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Small business corporationsSection 12E

Requirements Benefits


Requirements

1 Legal entity requirement

2 Shareholders’ requirements

3 Limitation of other shares held by shareholders

4 Gross income limitation

5 Limitation on investment income and personal service income

6 May not be a personal service provider


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1. Legal entity requirement

The SBC concession is limited to:

• a private company in terms of the Companies Act,

• a close corporation, or

• a co-operative in terms of the Co-Operatives Act

2. Shareholders’ requirements

All the shareholders or members of the company, close corporation or co-operative must, at all times during the relevant year of assessment, be natural persons

Burden of proof?


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3. Limitation of other shares held by shareholdersShareholders in the SBC may not hold any shares or interest in the equity of another company other than:• listed company,• portfolio in collective investment scheme in securities,• body corporate,• share block company,• social, consumer, burial co-operative (maximum 5%

interest),• Primary savings/loans co-operative bank (maximum 5%

interest),• friendly society• dormant or shelf-company (no trading and assets did not

exceed R5 000), and/or• venture capital company

3. Limitation of other shares held by shareholdersOnly the following co-operatives (where interest is 5% or less) will not disqualify the SBC concession:

• a social co-operative, that is, a non-profit co-operative which engages in the provision of social services to its members, such as care for the elderly, children and the sick (for example, child nursery facilities),

• a consumer co-operative, that is, a co-operative that procures and distributes goods or commodities to its members and non-members and provides services to its members (for example, consumer buy-aids), or

• a co-operative burial society, that is, a co-operative that provides funeral benefits, including funeral insurance and other services to its members and their dependants


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Case study #1 10 minutes

Eugene Barnes, a South African resident, is the sole member of Euba CC, a close corporation that owns a number of supermarkets in Gauteng. The CC has always qualified as a small business corporation;

Eugene is considering selling 50% of his interest to Ray Roberts;


Ray Roberts, a resident of Namibia, is involved in the following entities:

• trustee and beneficiary of the RR Family Trust, a discretionary family trust;

• member of the body corporate of a sectional title scheme in Pretoria;

• director of Alfa (Pty) Ltd, a South African company;

• holds a 2% interest in ArAgri Co-hoperative, an agricultural co-operative in Aranos, Nambia; and

• director and 100% shareholder in K2016983442, a company with no assets that has never traded


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REQUIRED:

discuss the tax consequences of the sale of 50% of Eugene's interest to Ray Roberts

4. Gross income limitation

• Gross income for the year of assessment does not exceed R20 million, and

• The limitation on gross income refers to the total amount received or accrued for a full period of 12 months, that is, the full year of assessment. An SBC that commenced or ceased trading during the year of assessment, must reduce the amount of R20 million proportionately in order to determine whether the gross income for the relevant period in question would have exceeded R20 million, had such company or close corporation traded for the full period of 12 months


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4. Gross income limitation

Definition of gross income in section 1:

• the total amount, in cash or otherwise,• received by, accrued to or in favour of such a person,• during such year or period of assessment, and• excluding receipts or accruals of a capital nature

R20 million or less

5. Limitation on investment income and personal service income

A maximum of 20% of the company’s total receipts andaccruals (including all capital gains but excluding amounts of acapital nature) may consist collectively of “investmentincome” as defined in section 12E(4)(c), and income from therendering of a “personal service” as defined in section12E(4)(d)


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Investment income

• any income in the form of dividends, foreign dividends, royalties, rental derived in respect of immovable property, annuities or income of a similar nature;

• any interest as contemplated in section 24J (other than any interest received by or accrued to any co-operative bank as contemplated in paragraph (a) (ii) (ff)), any amount contemplated in section 24K and any other income which, by the laws of the Republic administered by the Commissioner, is subject to the same treatment as income from money lent; and

• any proceeds derived from investment or trading in financial instruments (including futures, options and other derivatives), marketable securities or immovable property

Personal service

Definition Escape clause


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Personal service

• Any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science; and

• If that service is performed personally by any person who holds an interest in that company, co-operative or close corporation

Definition

Personal service

Not personal service if entity:

• employs three or more full-time employees (other than any employee who is a holder of a share in the company or a member of the co-operative or close corporation, as the case may be, or who is a connected person in relation to a holder of a share in the company or a member), who are on a full-time basis engaged in the business of that company, co-operative or close corporation of rendering that service


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Meaning of "consulting"TML Consultancy CC v CSARS (ITC 12860)

• Taxpayer was a close corporation;

• close corporation only had one member and also appointed one half-day personal assistant and made use of subcontractors;

• Carried on business in key account trade marketing including promotional activities such as advising on pricing, placement of products etc; and

• Taxpayer contended that it was a SBC and did not derive any personal income


• Essentially, the issue was whether the services rendered by the cc was "consulting" as contemplated in s12E(4)

• Two interpretation rules were relevant:– eiusdem generis: a word included in the group of words must

be regarded as being of the same type as the other words in that group, and

– exclusio alteris: a word is not included in the group, it must not be regarded as subject to the same prescriptions as that group


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• Dictionary meaning: advice or information offered by a person with knowledge;

• intention of the legislature: "professional person" (supported by the eiusdem generis rule and also indicated as such in a previous version of SARS IN 9);

• close corporation or its member was not member of a professional or similar body;

• difficult to define – therefore strict application (also contra fiscum);

• the service rendered was therefore not "consulting“; and• the taxpayer therefore qualified as a Small Business

Corporation (income was not from "personal service" as defined)


Rebecca Cooper is a professional accountant and tax practitioner who operates a small practice rendering tax and accounting services;

Her annual turnover is R800 000 and she does not own any shares or similar interests;

She has three staff members who are unrelated to her:

William - messengerDorothy - cleanerCindy - trainee accountant;


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Rebecca wants to make use of the protection (limitation of liability) offered by conducting her business through a private company of which she will be the sole shareholder.

REQUIRED:

discuss whether the private company will qualify as a small business corporation

6. Not a personal service provider

SBC legislation to serve as incentive.

PSP to discourage.

Why is this requirement necessary when requirement 5already limits income from personal service?


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Requirements Benefits

Reduced tax rates

Special capital allowance

Tax rates for financial years ending on any date between 1 April 2016 and 31 March 2017:

SBC tax rates

Taxable income (R) Rate of Tax (R)0 – 75 000 0% of taxable income

75 001 – 365 000 7% of taxable income above 75 000365 001 – 550 000 20 300 + 21% of taxable income above 365 000550 001 and above 59 150 + 28% of taxable income above 550 000


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Capital allowance: manufacturing

• Plant or machinery;• is brought into use for the first time by that taxpayer on or

after 1 April 2001 for the purpose of that taxpayer’s trade (other than mining or farming); and

• is used by that taxpayer directly in a process of manufacture (or any other process which is of a similar nature) carried on by that taxpayer

100% allowance

Process of manufacture or similar

• Practice Note 42 (1995)

• SIR v Safranmark (1981): the term “process of manufacture” is an action or series of actions directed to the production of an object or thing which is different from the materials or components which went into its making, appears to have been generally accepted. The emphasis has been laid on the difference between the original material and the finished product


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Capital allowance: other assets

• Machinery, plant, implement, utensil, aircraft or ship that qualifies for section 11(e);

• acquired on or after 1 April 2005; and• may elect:

50:30:20 Section 11(e)OR


Detrostate (Pty) Ltd had taxable income of R2 million for the year ended 31 December 2016 before taking the following transactions into account:

1. purchase of laptop for R5 500 on 31 August 2016.

2. purchase of passenger vehicle for R185 000 on 1 December 2016

REQUIRED:Calculate the normal tax for the 2016 year if:(A) Detrostate is a SBC(B) Detrostate is not a SBC


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Problems with SBC incentiveDavis Tax Committee (DTC)

• Not beneficial to entities with no or lower taxable income;

• misuse as secondary trades (double tax threshold);

• cost of administration;

• shareholder restrictions; and

Problems with SBC incentiveDavis Tax Committee (DTC)

• DTC proposes to redeploy incentive in the form of a compliance rebate if all tax affairs are up to date


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CGT exclusion for small business assets• Par 57 of the Eighth Schedule, and• R1.8 million exclusion for capital gain on disposal

Par 57 applies to:Par 57(2)

• an active business asset of a small business owned by that natural person as a sole proprietor; or

• an interest in each of the active business assets of a business, which qualifies as a small business, owned by a partnership, upon that natural person’s withdrawal from that partnership to the extent of his or her interest in that partnership; or

• an entire direct interest in a company or CC (which consists of at least 10 per cent of the equity of that company), to the extent that the interest relates to active business assets of the business, which qualifies as a small business, of that company; and


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Small businessPar 57

• a business of which the market value of all its assets, as at the date of the disposal of the asset or interest does not exceed R10 million

Active business assetPar 57

INCLUDES:• an asset which constitutes immovable property, to the

extent that it is used for business purposes; or• an asset (other than immovable property) used or held

wholly and exclusively for business purposes

EXCLUDES:• a financial instrument; and• an asset held in the course of carrying on a business mainly

to derive any income in the form of an annuity, rental income, a foreign exchange gain or royalty or any income of a similar nature


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Requirements

• Active business asset or interest was held for a continuous period of at least five years before the disposal;

• A natural person was substantially involved in operations of small business;

• has attained the age of 55 or the disposal is in consequence of ill-health, other infirmity, superannuation or death; and

• all capital gains must be realised within 24 months of first disposal

More than one business

• Where a natural person operates more than one small business either by way of a sole proprietorship, a partnership interest or a direct interest in the equity of a company consisting of at least 10 per cent, then he or she may include every such small business in the determination of the amount to be disregarded.

• But par 57 does not apply where a person owns more than one business either by way of a sole proprietorship, a partnership interest or a direct interest in the equity of a company consisting of at least 10 per cent, and the total market value of all assets in respect of all those businesses exceeds R10 million


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Carlo, a sixty year old chef, has operated Carlo's Pizzeria from the same location in Cape Town for the past ten years;

Carlo used to rent the building from which the business is operated, but opted to purchase the building three years ago for R1 million;

the lower level of the building is used for the pizzeria (100 sqm) and the upper level is used as a flat (50 sqm) by Carlo; and

Carlo wants to retire and accepted an offer of R2.5 million for the business as a whole


The consideration was allocated as follows (assume at market value):

• R1 750 000 for the building;• R500 000 in respect of equipment,

furniture and fittings originally purchased for R750 000 with a tax value of R1;

• R150 000 in respect of a delivery vehicle purchased 4 years ago for R140 000 with a tax value of R1. Carlo also occasionally used the vehicle for private purposes;

• R10 000 for trading stock purchased for R7 000; and

• R90 000 for goodwill


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REQUIRED:

discuss the tax consequences of the sale for Carlo.

Carlo is not registered for VAT

Turnover tax

Elective tax replaces

Microbusinesses with turnover R1m or less

CHOICE!

Tax calculated on taxable turnover

No need to keep detailed record

of expenses

"Registered Micro Business"

(RMB)


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• Individuals (sole proprietors), partnerships, close corporations, companies and co-operatives with an annual qualifying turnover of R1 million or less.

• Certain persons are disqualified from using the turnover tax system

Who qualifies?

Qualifying turnover

The total receipts from carrying on business activities, excluding any—

• amount of a capital nature; and

• amount exempt from normal tax in terms of section 12P


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Certain persons are disqualified from using the turnover tax system:

• persons who own shares or interest in equity (other than listed shares, CIS, body corporates, venture capital companies, friendly societies and less than 5% in certain co-operatives);

• natural persons: more than 20% of receipts during year of assessment consists of professional service income;

• companies/cc’s: more than 20% of receipts during year of assessment consists of professional service income and investment income;

• labour brokers, personal service providers, recreational clubs, public benefit organisations, small business funding entities, and section 30B associations; and

Who does not qualify?


• the total of all amounts received by that person from the disposal of immovable property or other capital assets used mainly for business (other than financial instruments) exceeds R1,5 million over a period of three years comprising the current year of assessment and the immediately preceding two years of assessment, or such shorter period during which that person was a registered micro business



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• companies with a year end other than last day of February;

• companies where all shareholders are not natural persons (or estates); and

• companies where shareholders have other shareholdings other than exclusions or dormant companies



• Partner in a partnership where any of the partners in that partnership is not a natural person;

• partner in a partnership where that person is a partner in more than one partnership at any time during that year of assessment; or

• partner in a partnership where the qualifying turnover of that partnership for that year of assessment exceeds R1 million



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If a person registers as a RMB, such a person will pay turnover tax on taxable turnover:

Turnover tax

Turnover(R) Rate of tax (R)0 - 335 000 0%335 001 - 500 000 1% of each R1 above 335 000500 001 - 750 000 1 650 + 2% of the amount above 500 000750 001 and above 6 650 + 3% of the amount above 750 000

The “taxable turnover” is basically all amounts that are• not of a capital nature, • received by the registered micro business (that is, on a

cash basis), • during that year of assessment, and• from carrying on business activities in the Republic

Taxable turnover


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• 50% of capital receipts relating to business assets.

• For companies, cc's and co-operations only: investment income (excluding dividends)

Specific inclusions

• Amounts refunded from suppliers;

• amounts refunded to customers; and

• natural persons only: investment income

Specific exclusions


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• Section 48 – 48C Turnover tax• Sixth Schedule Turnover tax• Section 10(1)(zJ) Exemption from normal

tax if registered microbusiness

• Par 57A CGT exclusion

Turnover tax

The following income of RMB's is subject to normal tax (and not turnover tax):

• investment income (natural persons only),

• remuneration from employment, and

• income from business activities outside SA

Turnover tax

The same receipt cannot be taxed under

normal tax and turnover tax!


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Recordkeeping

• Records of all amounts received,•

• records of dividends declared,•

• a list of each asset with a cost price of more than R10 000 at the end of the year of assessment as well as of liabilities exceeding R10 000

• Most income is not subject to normal tax but instead taxable turnover is subject to turnover tax,

• RMB does not have to register for VAT (but can do so),

• Dividends tax exemption up to R200k per year,

• CGT exclusion in par 57A of the Eighth Schedule, and

• two annual interim payments on 31 Aug and 28 Feb replaces provisional tax

Turnover tax: in a nutshell


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Worthwhile?

• Not very popular thus far (2013 statistics indicate only about 7 900 registered micro businesses), and

• depends on net profit margin (if expenses are high and profit margins are low, the normal tax system could be cheaper


Michelle operated a jewelry manufacturing business in her own name.She earned the following during 2017 YOA:

Salary from part-time job R500 000Income: jewelry sales SA R850 000Income: jewelry sales NAM R100 000Operating expenses (R750 000)Capital gain on sale of machine R100 000(Proceeds was R500 000)Interest on cheque account: R40 000

REQUIRED:Calculate the tax payable if:(a) Michelle is a registered micro business(b) Michelle is not a registered micro business


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Venture capital companies (VCC)Section 12J

• From 1 January 2009, but before 30 June 2021, investors can claim amounts incurred on acquiring VCC shares as a deduction from income;

• this deduction will not be subject to recoupment if the VCC shares are held for longer than five years;

• must apply to be VCC; and• incentive is offered to investors, not the VCC

Purpose:

To incentivise equity finance in SMMEs and junior mining

companies


• The company must be a resident,• sole object: management of investment in qualifying

companies,• the company's tax affairs must be in order, and• the company must be licenced in terms of s7 of FAIS Act

Requirements: VCC


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Qualifying company requirements:• SA resident,• not a controlled group company,• tax affairs are in order,• unlisted company or junior mining company,• investment income must not exceed 20% of gross income,

and• not carrying on impermissible trade (immovable property

other than hotel, banks, insurance, financial and advisory services, gambling, liquor, arms, ammunition, trade outside SA)

Requirements:investees

VCC status withdrawn if:

• if, during any year of assessment, after the approval of the Venture Capital Company status, the company fails to comply with the preliminary requirements as listed above;

• if the following is not met after 36 months:– a minimum of 80% of the expenditure incurred by the VCC to

acquire assets must be for qualifying shares, and each investee company must, immediately after the issuing of the qualifying shares, hold assets with a book value not exceeding:

• R500 million in any junior mining company; or• R50 million in any other qualifying company

– the expenditure incurred by the VCC to acquire qualifying shares in any one qualifying company must not exceed 20% of any amounts received by the VCC in respect of the issue of VCC shares


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Effectiveness of VCC regime

Only 32 currently registered

Small business funding entitySection 30C

• 2 exemptions

Funding received by

SMMES10(1)(zK)

Income received by

SBFES10(1)(cQ)


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Small business funding entitySection 30C

• Must be approved by Commissioner;• it must either be a trust or an association of persons

incorporated, formed or established in the South Africa or non-profit company;

• sole or principal object: to provide funding to SMME's (person that qualifies as RMB or SBC);

• the entity must provide funding for the benefit of, or must be widely accessible to small, medium and micro-sized enterprises;

• the funding must be provided on a non-profit basis and with an altruistic or philanthropic intent;

• the funding should not be intended to directly or indirectly promote the self-interest of any fiduciary or employee of the entity, other than reasonable remuneration; and

• the entity’s constitution or written instrument under which it was established must be submitted to the Commissioner and must comply with specific requirements set out in s 30C(1)(d)

Exemption: SBFE

• The receipts and accruals derived otherwise than from any business undertaking or trading activity;

• the receipts and accruals derived from any business undertaking or trading activity, if one of these met:– Integral and directly related to the sole or principle object of

the organisation (may not compete with taxable entities)– Occasional and with voluntary assistance– Approved by Minister; and

• business receipts and accrual other than above to the extent that it does not exceed the greater of:– 5% of the total receipts and accruals of the organisation

during the relevant year of assessment, or– R200 000

Income received by

SBFES10(1)(cQ)


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Exemption: SMME receiving funding• Any amount received by or accrued to a small, medium or

micro-sized enterprise from a small business funding entity is exempt from normal tax in terms of s 10(1)(zK)

Funding received by

SMMES10(1)(zK)

Employment incentives

• Learnership agreements (additional deduction), and

• Employment Tax Incentive (PAYE credit)

Both incentives expire soon

Possible extension?


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Course overview





Risks/issues/implications

• Independent contractor vs employee,• personal service providers,• labour brokers,• limitation of interest deductions,• interest-free loans,• VAT issues,• assessed losses, and• provisional tax


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Employee vs independent contractor

EMPLOYEE

• Earnings subject to PAYE• Deductions against

remuneration are limited by section 23(m)

INDEPENDENT CONTRACTOR

• No PAYE (pays provisional tax)

• No specific limit on deductions

Employee or independent contractor

1. Statutory test

2. Common law test


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Statutory test

A person is deemed to not carry on a trade independently if the services or duties are required to be performed mainly at the premises of the client, and

• the worker is subject to control as to the manner in which duties must be performed and hours of work OR

• the worker is subject to supervision as to manner in which duties must be performed and hours of work

Positive

Employee

Negative

Common law test

Escape clause

Statutory test will be negative if:

• an independent contractor who employs three or more full-time employees, who are not connected persons in relation to him or her and are engaged in his or her business throughout the particular year of assessment will be deemed to be carrying on a trade independently


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Statutory test: practical application1. Does the person employ three of more full-time

unconnected persons throughout year of assessment?

Do common law test

Proceed to step 2

Statutory test: practical application2. Are services required to be rendered mainly at the

premises of the client?

Proceed to step 3

Do common law test


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Statutory test: practical application3. Are services subject to control OR supervision of client

in respect of manner in which duties are performed or hours of work?

EmployeeDo common law test

Common law test

• Not a checklist approach,

• a dominant impression test, and

• SARS interpretation note 17


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Near conclusive indicators

Persuasive indicators


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Personal service provider (PSP)

ClientCo or trust

Service rendered by connected person to co/trust

is a PSP if:


Co or trust

Would have been an employee had services been provided directly to client

OR

Duties mainly performed at premises of the client or subject to supervision or control over way services are performed

OR

>80% of the income of the company is from one client (or related institution)


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• If the company or trust had three or more full-time employees, excluding shareholders or their related parties), it is not a PSP


Consequences of a PSP:

Employees' tax @ 28%

PSP is an employee

Deductions limited – 23(k)


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• The definition of “employee” in par 1 of the Fourth Schedule includes a labour broker, and

• a person (client) who pays remuneration to a labour broker is therefore an employer

Labour brokers

• A labour broker is defined in par 1 as a natural person who conducts or carries on any business whereby such person, for reward, provides a client with his own employees to perform work for the client or procures workers for a client, and

• it is the provision of workers (persons) and not a service

Labour brokers


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Client

Employee

Employee

Labour broker

• SARS may issue an exemption certificate to a labour broker, and

• in such a case, clients do not have to deduct employees' tax

IRP30


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• He must carry on an independent trade and be registered as a provisional taxpayer;

• he must be registered as an employer;• he must have submitted all returns required to be submitted in terms of

the Act;• he must not receive more than 80% of his gross income during the year of

assessment from any one client or an associated institution in relation to that client. The 80% test is not applicable if the labour broker, throughout the year of assessment, employed three or more full-time employees (other than shareholders, members or connected persons in relation to the labour broker company or the trust) who are engaged, on a full-time basis, in the business of the labour broker of rendering the relevant service;

• he must not provide the services of another labour broker to any of his clients; and

• he must not be contractually obliged to provide a specified employee to render any service to the client

Requirements for IRP30

• Section 23(k) limits the deduction of expenses incurred by labour brokers who do not have exemption certificates, and

• only salaries paid to employees are allowed as a deduction

Labour broker: section 23(k)

Section 23(k) does not apply where an

exemption certificate was issued


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• You are the tax consultant of Potbelly (Pty) Ltd (“Potbelly”), a company that operates a restaurant in Cape Town;

• one of the chefs of the restaurant, Mr Jamie Ramsey, resigned during December 2014 and incorporated his own company, Ramsey (Pty) Ltd through which he will continue to render services as a chef. Jamie is the only shareholder of the company;

• from 1 January 2015, Ramsey (Pty) Ltd started rendering chef services to Potbelly on the premises of Potbelly for R30 000. Ramsey (Pty) Ltd does not currently have its own premises, other employees or customers other than Potbelly;

• the Commissioner of SARS indicated that the monthly payment made by Potbelly to Ramsay (Pty) Ltd is subject to employees’ tax. The accountant disagreed since he is of the opinion that a company cannot be an employee.

• ADVISE WHETHER SARS IS CORRECT AND INDICATE ANY OTHER TAX RISKS

Limitation of interest deductions

• Section 23M: limitation of the deduction in respect of interest paid to persons not subject to tax, and

• Section 23N: limitation of interest in respect of reorganisation and acquisition transactions


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Interest-free or low interest loans

• Dividends tax,

• Brummeria principle, and

• other implications

VAT issues

• Registration is still onerous process,

• invoice basis for companies (cash flow),

• compulsory registration threshold is not that high, and

• small business customers are often not registered


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Provisional tax

• Underestimation penalty of 20%, and

• overpayment often results in audit/verification and delays in getting refund

Where section 20A applies, a natural person is prohibited from offsetting assessed losses (or balance) derived from a specific tradeagainst the income derived from another trade or non-trading activity

Ring-fencing of assessed lossesSection 20A


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Section 20A: ringfencing

• Applies only to natural persons

• Maximum tax bracket

• Suspect trade

Taxable income > R701 300 (2016)R701 300 (2017)

Artikel 20A: omheiningSection 20A: ring‐fencing


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Suspect trades list1. Sport;2. dealing in collectibles;3. rental of residential accommodation (unless 80% is

used by non-relatives for at least half of the year of assessment);

4. rental of vehicles, aircraft or boats (unless 80% is used by non-relatives for at least half of the year of assessment);

5. showing of animals;6. farming or animal breeding (unless if on full-time

basis);7. performing or creative arts; and8. gambling or betting (excluding the owning of race

horses)

Course overview






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Considerations

• Limitation of liability and legal protection,

• transferability of ownership,

• compliance cost, and

• tax considerations


John owns a business (as sole proprietor) and earned taxable income of R1 million during the year;

advise John on whether it would be more beneficial from a tax perspective to conduct the business through a private company; and

assume that the business would not qualify as a small business corporation


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Presenter

• Herman van Dyk CA(SA), AGA (Eng & Wal), MCom (SA & Intl Tax); BAcc(Hons)

• Tel: 082 877 3856• E-mail: [email protected]

Documents

Tax Issues for SMME - cdn.ymaws.com€¦ · Tax Issues for SMME Presented by Herman Van Dyk CA(SA), RA, MCom(SA and international tax) Herman is a senior lecturer at the Potchefstroom