You could save up to R95,000 cash in Corporate Income Tax each year, up to the first R550,000 of taxable income, if you qualify as a Small Business Corporation.

The purpose of this tax legislation is to provide a friendlier tax treatment to encourage small businesses to invest in capital assets and have more after tax income to reinvest for growth.

Qualifying requirements
In order to qualify as an SBC, an entity must meet the requirements stipulated in the definition of “small business corporation” in section 12E(4)(a). Below is a summary of those requirements, comprising four key areas, namely:

1. A legal entity requirement
The taxpayer must be a “juristic” person in the following forms:
• “close corporation”;
• “co-operative”;
• “private company” as defined in section 1 of the Companies Act; or
• “personal liability company” as contemplated in section 8(2)(c) of the Companies Act.

2. A holder of shares requirement
• All the holders of shares or members must, at all times during the relevant year of assessment, be natural persons. No part of the share capital or members interest of an SBC can therefore be held by a juristic person such as another company.
• The holders of shares in, or members of, the qualifying entity may not at any time during the particular year of assessment hold any shares or have any interest in the equity of any other “company” as defined in section 1(1), except in those companies specifically permitted.

3. A gross income limitation requirement
• The gross income of a qualifying entity may not exceed R20 million for the particular year of assessment.

4. A business activity requirement
• An entity cannot qualify as a SBC if more than 20% of the total of all receipts and accruals (excluding capital receipts) and capital gains, consists of
– investment income (including dividends, foreign dividends, royalties, rental derived in respect of immovable property, annuities or income of a similar nature, interest, any proceeds derived from investment or trading in financial instruments, marketable securities or immovable property).
– income from the rendering of a personal service (in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health, information technology, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary science), if the service is performed personally by the holder of the interest AND throughout the year of assessment, three or more full time employees were not full time engaged in the business rendering that service. The employees cannot be connected to the owner in order to qualify.

AstraFin would be able to assist you if you would prefer to discuss how to align your business to qualify for this tax incentive. Please contact us to arrange a suitable time.

2 June 2019