The benefits of being a Small Business Corporation
There are massive benefits in having your company or CC classified as a Small Business Corporation – most particularly a potential tax saving of approximately R95,000 every year.
Here is how you qualify –
1) All members (shareholders) must be natural persons (i.e. no trusts or other companies).
2) No members may hold shares in any other private companies except dormant companies with less than R5 000 assets.
3) Turnover of the company and its subsidiaries must not exceed R20m.
4) No more than 20% of the turnover and capital gains may consist of investment income (such as property rental) and income from rendering a personal service.
5) Personal service includes professional services such as law practice, accountancy, auditing, commercial art etc.
6) The company is not a personal service company if it employs at least three independant full-time employees in its core operations.
7) The company may not be a labour broker.
Tip If you are the member of one SBC, your spouse can be the member of another, your adult child another and any remaining companies or CCs can be owned by a family trust. That would be three SBCs in one family!
Trap A sole trader or a partnership cannot be a SBC, so in order to qualify they would have to incorporate. The major downside to doing this is that they would then have to account for VAT on the accrual basis rather than the cash basis and this will affect their cash flow. But R90 000 tax also affects their cash flow!
Assets used in the process of manufacture can be written off in the year of purchase.
Other depreciable assets may be written of 50% in first year, 30% in second year and 20% in third year.
Up to about R95 000 each year saved on Income Tax.