Greater Tax Benefits for Small Business Corporations

Donʼt assume your SMME automatically qualifies for the tax incentives enjoyed by small business corporations!


Read on to find out why you should ensure your SMME also qualifies as a small business corporation so that you can DOUBLE your tax benefits.

SBCs have more tax benefits than SMMEs

Small, medium and micro enterprises (SMMEs) aren’t the same as small business corporations (SBCs). The obvious differences include:

  • Any entity can be an SMME, while an SBC can only be a close corporation or a private company; and
  • The Income Tax Act governs SBCs while the National Small Enterprises Act governs SMMEs.

The most important difference is the different tax benefits they enjoy

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SBCs benefit from special tax rates and accelerated allowances in the Income Tax Act, whilst SMMEs benefit from having certain amounts/grants exempted from tax.

Youʼll only be an SBC if you meet the following requirements Your company has to meet all the following requirements before it can qualify as an SBC (Section 12E of the Income Tax Act):

1. Ownership requirements

It must be a close corporation, any private company registered under the Companies Act, a co-operative or a society AND:

  • Shareholders or members that are natural persons must hold the entire shareholding at all times during the tax year;
  • Shareholders must hold the shares for their own benefit and not as nominees;
  • Shareholders or members mustn’t at any time during the tax year hold any shares or any interest in any
    • A listed company;
    • Any portfolio in a unit trust scheme;
    • A body corporate established in terms of the Sectional Titles Act, 1986;

These are only 3 limitations when qualifying for small business tax benefits but there are another 6 that you need to know.

TIP:
An amendment was introduced, allowing for circumstances where a new business is setup using shelf close corporations or companies (close corporation or company was already registered by someone else that then sells that corporation or company to you).

2. Turnover requirements

Remember: When you start trading during a tax year, you must calculate the annual equivalent to determine whether your turnover would have exceeded R14 million had you traded for the full tax year.
  • Gross income, includes all exempt income, but excludes any capital gains.

3. Business activity requirements

• The company can’t be a personal service provider (Fourth Schedule).

Definition: Personal service provider

Any company or trust, where any service rendered on behalf of the company or trust to a client is rendered personally by a connected person (this includes a member or shareholder of the company or CC or any relative of the shareholder or member), and

• such person would be regarded as an employee of the client if the service was rendered directly to the client; or

• where those duties must be performed mainly at the premises of the client, the person, company or
 

Caution: A company or trust can’t be a personal service provider where the company or trust throughout the year of assessment employs three or more full-time employees who are not shareholders, members or connected persons.

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As a small business you cannot afford to miss out on these tax benefits. In the Practical Tax Loose Leaf Service goes into full detail about how and why small business corporations can have greater tax benefits.

  • How to ensure your business qualifies as an SBC
  • SBCs enjoy lower tax rates
  • Your SBC qualifies for tax investment incentives
  • Additional incentives enjoyed by SBCs

Take advantage of these tax saving opportunities by ordering the Practical Tax Loose Leaf Service for a 14 Day Risk Free trial now!

But that's not all...

If SARS comes knocking at your door, are you 100% confident that all your books are in order?

When it comes to tax you need to make sure you know your rights and ensure you never pay too much tax or end up with penalties of as much as 200%. Just relying on your accountant or tax consultant could end up costing you hundreds of thousands of rands.

Try our complete Tax Advisory Service risk-free for 14-days. As part of this service you’ll receive the Practical Tax Handbook, three Bonus Reports, Regular updates, the Weekly Tax Bulletin, Online access to past Tax Updates and a Tax Helpdesk.

Small businesses benefit with the Practical Tax Loose LeafWhat you’ll discover in the Practical Tax Loose Leaf :

  • 22 checklists to use in assessing your tax audit risk
  • 13 items SARS will check during an audit
  • 4 expenses SARS will target
  • 11 questions SARS will ask you
  • What to do when an assessment is issued
  • Documents you must retain for your audit
  • The risk areas on your balance sheet
  • How to minimise your payroll risk
  • The general checks in a Vat audit
  • Real-life case studies
  • What questions to ask when disputing an assessment