How to minimise company tax
There is no threshold for normal company tax. The first Rand of taxable income is taxed at 28%.
However, there’s an exception to this. If the company is a Small Business Corporation (SBC) then the first R91 250 profit is free of tax. The tax rate then steps up to 7%, then 21% and finally 28% above R550 000 taxable income.
The main qualification is that all shareholder must be natural persons and may not be shareholders in any other active company or CC. It may also not be a rental company or a personal services company.
There are other qualifying criteria, but they are generally easy to satisfy.
Now, let’s suppose that your small company is making a profit of R500 000. It’s an SBC, so the tax is zero up to R91 250 then R48 083 for the remaining taxable income.
Don’t fancy paying R48 000 tax?
You can reduce this significantly by splitting your company into two and making your spouse the shareholder of one while you remain the shareholder of the other.
Now you have two SBCs and the tax will be zero on the first 2 x R91 250 and 7% on the rest. Total tax R22 225.
All perfectly legal.
There’s a small proviso. If SARS questions why you did this, your reason must be logical from a business point of view. Because if it is done mainly for the purpose of avoiding tax, it could fall foul of the anti-avoidance provisions. But that doesn’t require much imagination.
Note that we’re talking shareholders. There’s no restriction on the directors.