I have been wrong all this time! The answer is yes, a trust must register as a taxpayer even though it will never receive taxable income. I dug this up while referencing my upcoming book 16 Steps to Tax Wisdom. Here’s why – s67 Registration as taxpayer.—(1)Every person who at any time becomes liable for any normal tax or who becomes liable to submit any return contemplated in section 66 must apply to the Commissioner to be registered as a taxpayer in accordance with Chapter 3 of the Tax Administration Act s66 Notice by Commissioner requiring returns for assessment of…
Tax
I was caught really flat footed recently when, in a meeting, I was asked whether the client, who buys and sells residential property and is VAT registered, must charge VAT on each sale. I knew the answer was “No”, but an alarm bell rang in the back of my head, because I had accepted that as common knowledge and had never gone to source, the VAT Act, to confirm it. I promised to go to source and report back. Well, I had to report back that nowhere in the Act, does it state in simple terms that the trade of…
SARS seems to be trying everything in the book to squeeze more out of those who pay tax. Now it’s all about assessed losses. If your company had an assessed loss at the beginning of any year, it could carry it forward as a deduction against future taxable income provided it traded in that year. This remains the case for companies whose taxable income is less than R1m. However, for those whose taxable income exceeds R1m the set-off is limited to 80% of the taxable income. Evidently, although s20 is not absolutely clear on this, the balance of the assessed…
Now I’m disgusted. A new client whose personal tax return was due in November 2022 didn’t submit until January 2023. It was a perfectly straightforward return and his tax came to R75 000. He had paid R68 000 in PAYE so there was R7 000 still to pay. All well and good. But SARS had hit him with R2 000 per month, R6 000 in total, Administrative Penalties for late submission! Now, I know SARS has the authority to impose these penalties, but the punishment is so excessive in relation to the crime, that I can’t help thinking that there’s…
So, what is the real tax cost of the salary that you draw from your own company? You, and many like you, may be pleasantly surprised. What most people forget is that when they draw salary from their company, this is a tax deductible expense, so the company saves 27% tax (currently 28%, but coming down). So, let’s say you’re under 65 and that the only income that you receive is from your company. Your company owes you some start-up money and you charge R23 800 interest per annum on that loan. The first R23 800 interest received is 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…
No. Only shareholders which are companies are exempt. Having said that, if company A is a beneficiary of a trust which owns company B and company B declares a dividend, can the dividend flow through the trust to company A using the Conduit Principle thereby avoiding the DWT? An interesting question. I’m not a tax specialist, but by the way I read s41 and then s1 of the Income Tax Act, in order to be exempt the dividends have to be received by a company which is, either directly or indirectly, a 70% or more shareholder in the company paying…
The guy I was talking to on Zoom lives in Cape Town, works remotely for a Dubai company and earns a good income. He and his wife are thinking of living in Dubai for half of every year so that they will not be deemed to be South African residents. They figured they would save 45% tax because he’s on the maximum marginal tax rate. It seemed like a good idea as Income Tax in Dubai is zero. There are a number of factors that he missed. I didn’t ask what his income is, so let’s work on R2m a…
It seems there’s a need for further clarity, particularly regarding Donations Tax, Exempt Institutions and PBOs (Public Benefit Organisations). You will have read in another article that certain non-profit entities may register at SARS both as an Exempt Institution (EI) and as a PBO. So what is the difference and how does that affect taxes? Exempt Institutions do not pay Income Tax. They may still have to pay Donations Tax as well as PAYE, VAT etc., depending upon their nature. Public Benefit Organisations are exempt from Donations Tax. Also a donor to a PBO does not pay Donations Tax and…
Transactions, such as the sale of shares or fixed property between related parties are deemed for tax purposes to have been at market value, regardless of the documented transaction value. It often happens that you will want to sell assets into your trust structure and you are a connected person in relation to the trust. So, how are the assets valued? The value of listed shares are published daily, so that one is easy, but what about shares in a private company, or in an investment property? All tax acts are silent on who may perform the valuation, so you…
I was chatting to a client on Zoom and trying to do some quick arithmetic at the same time. I didn’t do too well! She had R35m which she wanted to lend to an investment company that would be owned by a new trust. The question was. How much tax would she pay as a result of s7C of the Income Tax Act. s7C says that she would have to charge the company interest on the loan at least at the official rate which is currently 5,25%. Because the company deducts the interest from its taxable income, that’s a negative…
Don’t hold your breath! The drop was first announced in the 2021 National budget and again in that of 2022. But, guess what, it only comes into effect for companies whose financial year commences on or after 1 April 2022. And since most companies have a 28 February year end, that meant that from the first announcement in February 2021, the benefit will only be felt in September 2024, when the Feb 2024 taxes are due for payment. That’s three and a half years later. And we’re supposed to get excited?
Oh dear! What is SARS thinking? In the good old days, we had to appoint a Public Officer for each company. That was the person who was to be responsible for submitting the tax returns and responding to SARS’ correspondence. Then suddenly, in about March 2021, we found that we were unable to submit certain returns or get a Tax Clearance for our newer companies, because there was no “Representative” appointed. So what happened to the Public Officer? If you check out SARS’ document “Enhancements for Tax Practitioners and representatives” you will see that they refer to “the Public Officer/representative”.…
It was, I think, about two years ago that SARS started hitting random dormant companies with administrative penalties of R200 each month for each annual tax return that was overdue. I still get well over 100 SMSs and emails from SARS advising me that another penalty has been imposed. In the early days, we sent emails to each of the companies to advise them of the penalties, but they generally did not respond, so now I just delete all those messages from SARS. However, last month, they announced that they are going to start hitting individuals and I have just…
It is a very common misunderstanding that a dormant company does not have to submit returns. Quite simply, all companies must submit tax returns and CIPC returns, albeit Nils.
Instead of declaring your drawings as salary, rather fix a monthly salary of, say R40 000, above what your start-up company can afford to pay you right now. Pay the PAYE on that fixed amount and credit the balance to your loan account. Then deduct any drawings from the loan account. When the company can pay you a good salary of, say, R70 000 per month, declare only R40 000 for PAYE purposes and take out the rest as repayments of the loan account. It works like this – How does it work? By paying a consistent amount of PAYE…
Everywhere you look, even on SARS’ website, you will see that you can make a third (voluntary) provisional tax payment by 30 September for February year end entities and six months after the tax year end for other entities. Why would you want to do this? The tax for the previous year ending February falls due on 30 September even though the tax return does not have to be submitted until after that (end February the following year for companies). Any tax not paid by 30 September is subject to interest charges, currently at 7%, until paid. This interest is…
I’m getting a lot of calls lately, because SARS is hitting more and more dormant companies with monthly administrative penalties for each annual tax return outstanding. Here’s a summary of my response – It is the company that becomes liable to SARS for the penalty The directors cannot be held liable The shareholders cannot be held liable The public officer cannot be held liable The only time that SARS can recover the penalties is if the company starts to trade If your company is not trading, I suggest that you ignore all correspondence from SARS relating to the penalties If…
Oh wow! Company Tax down from 28% to 27%. Isn’t that lovely? But what does it mean exactly? If your company is doing OK, then it probably makes about 7% net profit on turnover before tax. Then, until this exciting announcement, it paid 28% x 7% tax, that’s 1,96% of turnover. Now however, you must be really happy, because it will only pay 1,89%, a massive saving of .07% of turnover. So the next time you think of increasing your selling prices, be sure to pass at least some of the benefit on to your customers. They will love you…
I have deliberately used the exact headline that appeared under Businesstech on my Google news feed. This kind of sensationalist rubbish is shameful and has to be exposed as just that – sensationalist (and, I suspect, advertorial) rubbish. Although written by a staff reporter, the (mis)information is attributed to Mohamed Kamdar a “tax specialist” at the South African Institute of Professional Accountants. Now that, in itself, is a falsehood, because the SAIPA do not employ tax specialists. The reality is that he only belongs to SAIPA. Given that SAIPA is a poor man’s substitute for SAICA, the South African Institute…