zombie, Author at Harbour & Associates

So you are starting a business and can’t decide whether it should be a company or remain a sole proprietor. It really depends upon the nature of the business, who your customers or clients will be and your expectation of success. So let’s take a look at it. One-man goods or service provider to the general public. You don’t expect to do more than earn a decent living, so you want to keep things simple and keep the costs down. Also, the general public don’t usually care whether they are dealing with a company or an individual. As far as…

We have been forming trusts for about 20 years. Many of them are formed with me as the Donor and my wife Helen and I as trustees. They are the put on the shelf to mature and be sold when someone needs a trust urgently or wants an old one. Then we change the trustees, beneficiaries etc. and usually leave me in place as the Independent Professional Trustee. And now, many years down the track, the Johannesburg Master has suddenly decided that the Donor cannot be the Independent Trustee. Not only did it take her and her predecessors about 20…

If you want the company to have a name, then the minimum cost is R175. That is the CIPC fee of R50 for reserving the name and R125 for registration of a company. If you don’t register a name, you’ll end up with a company called something like K2020/001234/07. That’s if you do the entire job yourself. The alternative is to engage a professional, such as ourselves. The fee is currently R610 and then you know that you are tapping into a professional support service that will carry you through all of the statutory obligations applicable to companies. These include…

The decision as to what a trust should own is largely dependent on the main purpose for which it was created. Although most trusts serve both purposes, some are formed principally for estate planning and others for asset protection. Let’s look at each of these – Estate planning Your objective here is to minimise the Estate Duty and CGT, both of which kick in on death. Estate Duty is based on the net value of your estate, whilst CGT is levied on the gain in value of each asset from the date of purchase to the…

The property market in South Africa is undergoing zero or near-zero growth, doubtless because it reflects the economy in general, and also because so many income earners are leaving the country because they believe they can do better elsewhere. So, is it a good time to buy? It usually makes no difference whether you buy when the market is low or when it is high. The trick is always to buy below prevailing prices. The first consideration is why are you buying? Somewhere to live. If this is a first time buy, then yes, buy when the market is low.

I get lots of calls from people who want to start a business. It is difficult to respond to them because they really have no idea what it means to start, grow and run a business. So, here’s a straightforward guide. Decide what the business will sell. What great idea do I have? What am I really good at? What are people/companies badly in need of? What do I need in order to deliver the goods or services? A factory? Plant and equipment? Offices? Office furniture and equipment? Delivery vehicles? How will I make connection with my potential customers? Word…

Over the holidays, I ran a sample of the companies that we have, in the past, registered for clients, to see what was their status at CIPC. 41% of them had either been finally de-registered, were “In de-registration process”, or had outstanding CIPC returns and were therefore one step short of being in de-registration process. So there’s a very good chance that your company falls into the 41% category! The consequences are dire. If your company is in de-registration process, the banks will have nothing to do with it. They don’t get flagged automatically, so you may not find this…

Many companies can qualify as Small Business Corporations (SBCs) and save a lot of tax, but most entrepreneurs are unaware of these benefits. The requirements are, in most cases, not difficult to satisfy. First off, the SBC must be a company or CC and all of the shareholders (or members) must be natural persons, so that rules out holding companies and trusts. Then the shareholders may only be shareholders of the SBC or of dormant companies (or CCs) each with assets of less than R5 000. If any of them hold other shares, they should sell those shares to a…

So, your trust owns investment properties and is liable for 45% tax on the net income. You read my article about how this should have been structured. Is it too late to put it right? Fortunately, it can still be done thanks to s42 of the Income Tax Act. You need to do an asset for share swap. Here’s how it works – You need to slip a company between the portfolio and the trust. Ideally, it needs to be a company that you newly form. Then the first issue of shares is in favour…

The simple answer is that you can’t. SARS no longer issues Tax Clearance Certificates (TCC) and the reason is pretty obvious. They were valid for 12 months provided you kept your tax affairs up to date. If you didn’t, then you would be sitting with a document that looked fine but was invalid. So now, what you get is a PIN, which you pass on to the customer who asked for a TCC. They can then go on to efiling, enter your Tax reference number and the PIN and see whether your tax affairs are up to date. Your tax…

There’s a simple answer to that one. You don’t! There’s one bunch of attorneys who claim to be experts on trusts. And yet, they will try to convince you that you need four trusts, not just one. According to them you need a family trust to hold your personal effects, a residence trust to hold your primary residence, a share trust to hold your shares and a property trust to hold your investment properties. They argue that this is necessary in order to isolate risks, but they miss the point completely. Actually, I’m sure they know this, but, like Woolies,…

When the new Companies Act of 2008 was finally implemented a year later, we could no longer form Close Corporations. But should you convert? The main reason that CCs fell away was that owner managed companies (and a CC is owner managed) became so similar to CCs that the latter became redundant. The prinicipal changes were that an owner managed company: 1) Did not need an audit or an auditor 2) Did not need a company secretary 3) Did not need to draft formal financial statements. Contrast these with a CC which: 1) Does not need an audit, but must…

A company is taxed at 28% and a trust at 45%, so it’s a no brainer, or is it? If you own shares in your investment company and you go belly up financially, the shares will form part of your insolvent estate and will be sold. Not good. If your trust holds the investments, they are protected from your creditors, but what about that tax rate? Best is for your trust to own a company which, in turn, owns the investments. Income is taxed at 28% and the investments are protected from your creditors. Now, that’s a no-brainer!…

Here are some of the key questions that I ask when someone comes to me for advice about starting a new business. 1) What differentiates your company from its competitors? The point here is that if you think you can succeed just by doing what others do, then you’ve really got nothing to offer. You’ll just be another one of them. 2) How are you going to market your product or service? I think of marketing as either billboarding or search. Billboarding is putting you company out there for all to see (billboards, social media, radio and tv advertising, advertisements…

There’s a common misperception that a company has to be formed for a particular purpose. This is simply not the case. The standard short form Memorandum of Incorporation under the Companies Act of 2008 states that “The purposes and powers of the Company are not subject to any restriction, limitation or qualification”. This means that you could run a hotdog stand, rent out offices, and manufacture light bulbs, all in the same company. So, you could have – XYZ(Pty) Ltd trading as ABC (selling hot dogs) XYZ(Pty) Ltd trading as DEF (flying aero planes) XYZ(Pty) Ltd trading as HIJ (washing cars)…

I’ve had a few horror stories lately about people who died intestate. One was a client for whom we prepared a Will, but she never signed it. She died at a young age and her family got nothing of her estate because her future husband had paid lobola and they were therefore deemed to be married. Fortunately, most of her wealth was held by a trust that we had set up for her and her family were beneficiaries of the trust. Another was a professional lady who lived with a very close…

Did anyone ever tell you that income splitting was a great idea? Read this before you believe them! There’s one bunch of attorneys who specialise in trusts that punt income splitting through a trust conduit as a great way to minimise tax, but they didn’t think it through properly. Here’s how it works – The trust earns taxable income on which it would be taxed at 45%, but no problem, flow the income through the trust using the conduit principle, and pay it to beneficiaries who are on a low tax rate. Magic! The beneficiaries will pay maybe 18%…

So you’re thinking of starting your own business. Why may I ask? Freedom? Ha! Wealth? Ha! Ha! Passion? Now you’re talking! But if it is a passion for sewing or carving or designing or whatever it is that you do well, then sorry for you. You have to be passionate about being a business person, because it doesn’t matter what the underlying product is, you won’t succeed unless you run the business properly and that means you won’t be doing much of what the business does – you won’t have time. The beginning is all too easy. You don’t have…

What happens to the trust income when you retire? Now it’s you that needs the money. In our ideal trust structure, the trust owns the investment company, which pays 28% tax, then re-invests the 72% to build the investment portfolio. Maybe the company must declare dividends to its shareholder, the trust, and these can then flow to you as a beneficiary, like this – Let’s add up the taxes on say, R100 000 taxable income. Take off 28% Income Tax paid by the company and that leaves R72 000 available for dividends which will be taxed at 20% or R14 400.

Trade inherently holds relatively high risk compared to asset holding, so they should be in separate trust-owned companies. But how do you get the money from one to the other? Many would advise you to have them both owned by a holding company (see the article image taken from such an advisor’s website). The trading company declares its profits out via regular dividends to the holding company, which in turn lends them to the investment company. There’s no Dividends Withholding Tax when the shareholder is another company and the dividends keep the value of the trading company near nil,…

Author: zombie

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