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Small Business Corporations: Tax Savings on Offer

Small Business Corporations: Tax Savings on Offer

Date: 2015-04-10
There were fears that at the budget speech in February, the Minister of Finance would announce the scrapping of the Small Business Corporation classification for companies. Fortunately this was not the case and Small Business Corporations are alive and well for the time being.

For tax purposes the term "company" includes close corporations and private companies.

A company will qualify as a Small Business Corporation if in any tax year it meets the following criteria for the entire tax year:

  • All the shareholders are natural persons.
  • None of the shareholders may hold shares in any other company. Shares held in listed companies is permissible.
  • Gross income may not exceed R20 million.
  • Investment income and income from certain tainted professions and industries may not exceed 20% of gross income.

There are 2 major advantages if a company is classified as a Small Business Corporation:

  • The tax rates are lower than the normal company tax rate of 28%. The tax rates of a Small Business Corporation range from 0% to 7% to 21% to 28%. For example, a Small Business Corporation that has taxable income of R550,000 or more, will pay about R94,000 less tax than normal companies.
  • Movable assets are depreciated rapidly over 3 years at a depreciation rate of 50% in year 1, 30% in year 2 and 20% in year 3. Movable assets are depreciated at 100% in year 1 if they are used directly in a process of manufacture or a similar process.

Continued in next week's edition of The Bugle, read it to find out more about the benefits a SBC offers you or contact Roberts and Chaplin Chartered Accountants at 032-5860387 (Ballito) or 032-9471010 (Umhlali) for further advice on Small Business Corporations or any other tax related matters.