WHAT/WHO IS A SMALL BUSINESS CORPORATION?
For tax purposes a Small Business Corporation means a close corporation, co-operative or a private company, which complies with all the following requirements:
- All the shareholder/members must at all times during the year of assessment be natural persons (individuals);
- Shareholders/Members may not hold any shares/members interest in equity of any other company/close corporation. However a share or interest in the following entities are excluded from this requirement:
- Listed Companies;
- A participatory interest in a collective investment scheme;
- A company contemplated in section 10(1)(e) of the Act (body corporate);
- Less than 5% of the interest in non-business co-operatives such as consumer buy-aids, social co-operatives (such as child nursery facilities) or burial societies;
- Friendly societies; and
- Less than 5% of the interest in a primary savings co-operative bank or a primary savings and loans co-operative bank as defined in the Co-operatives Bank Act, 2007.
- The gross income for the year may not exceed R14 million;
- Not more than 20% of the total of all receipts and accruals (other than those of a capital nature) and all the capital gains may consist collectively of investment income and income from rendering a personal services.
Investment income includes interest, dividends, royalties, rental in respect of immovable property, annuities or income of a similar nature, interest contemplated in section 24J of the Act, other than interest earned by a co-operative bank, amounts contemplated in section 24K of the Act and proceeds derived from investment/trading in financial instruments/marketable securities/immovable property.
Personal services are services in the field of, for example accounting, real estate, consulting, attorneys, auditors, engineers, sport, journalism and secretarial services which are performed personally by a person holding an interest in the Small Business Corporation.
A Small Business Corporation which is engaged in the provision of personal services will still qualify for the tax relief if it throughout the year of assessment employs three or more full-time employees who are on a full-time basis engaged in the business of the Small Business Corporation rendering that service.
- May not be an employment company.
TAXATION OF A SMALL BUSINESS CORPORATION
The first concession is to be taxed on the basis of a progressive rate system, viz the tax is calculated at a rate of 0% on the first R 46,000 of taxable income, 10% on taxable income in excess of R 46,000 but not exceeding R 300,000 and thereafter at a rate of 28% for every R1 in excess of R 300,000.
The second concession is the immediate write-off of all plant or machinery used in a process of manufacture or similar process in the tax year it is brought into use for the first time. Furthermore an accelerated write-off allowance for depreciable assets (other than manufacturing assets) acquired on or after 1 April 2005 is available at 50% of the cost of that asset in the tax year during which that asset was brought into use for the first time, 30% in the second year and 20% in the third year.
For more information on the tax benefits for small business corporations please contact Pieter on 012 661 1160 or email pieter@afsfinancialservices.co.za.