We all know that tax is a reality and most small businesses feel that pressure all too often. There might be good news for you. Paying your tax is the right thing to do and no-one would be happy with the idea of the Tax Man coming to knock on your business’ doors. The good news might be something you already know, but if you don’t, it is a great bonus, in the literal meaning of the word.
Companies and Close Corporations are currently taxed at 28%. If you qualify as a small business corporation you will pay tax on a lower scale than the current 28% and can save up to R77 949 per year on your tax.
This is how you will pay tax on your profit if you qualify as a small business corporation (for financial years ending between 1 April 2012 and 31 March 2013):
R0 – R63 556 will have you paying nil tax.
R63 556 – R350 000 you only have to pay 7% tax on the amount over R63 556.
R350 001 or more, will have you paying R20 051 and 28% of any amount over R350 000.
To qualify as a small business corporation, you don’t need to register, you just need to comply with the following:
- All shareholders or members need to be natural persons who hold no shares in private companies or members’ interest in any other entities other than those which are inactive and have assets of less than R5 000.
- The business’ gross income should not exceed R14 million.
- Not more than 20% of the gross income and all the capital gains consist collectively of investment income and income from rendering a personal service. Should the company render personal services (accountants, attorneys, etc.) it will still qualify where such a small business corporation employs three or more unconnected full time employees for core operations.
- The business is not an employment entity.
This is a great way to save on those taxes. Some small business owners like you might have paid more tax than they should have. With profit being your main priority, especially if you are an entrepreneur and want to see your ideas turn into money, an additional R77 949, sure can make a big difference.
The Tax Man is not that bad after all; you just need to read a lot more about him and use professional accountants who are always on top of new legislation and tax breaks.