First things first
The South African Revenue Service (SARS) has made complying with tax obligations for Small Business Corporations (SBC) a lot easier over the last few years and recognises the economic importance of small businesses. To motivate entrepreneurs, businessmen and women, the legislator incorporated certain tax incentives designed especially for small businesses.
But, first – what is a SBC?
Section 12E(4) makes provision for the definition of SBC’s and can be summarised as follows:
The elements of a SBC
|1. Type of business||
The company may not be a “personal service provider” as defined in the Fourth Schedule of the Income Tax Act Nr 58 of 1962.
|2. Type of Shareholders or Members||
|3. The gross income limit||
|4. Receipts and accruals||
Thus, if at any time during a year of assessment, the small business does not comply with all of the above – such business will not qualify as a SBC and will therefore not be able to benefit from the SBC tax relief measures.
What are the tax benefits of a SBC?
- More favourable income tax rates apply, as a SBC is taxed at a progressive rate (the higher the taxable income, the higher the income tax rate). See the 2019/2020 tax table for SBC’s below:
SBC tax rates for financial years ending on any date between 1 April 2019 and 31 March 2020 Taxable income (R)
0 – 79 000
79 001 – 365 000
365 001 – 550 000
550 001 and above
Rate of tax (R)
0% of taxable income
7% of taxable income above 79 000
20 020 + 21% of taxable income above 365 000
58 870 + 28% of the amount above 550 000
- All plant and machinery brought into use for the first time by the business, for the purpose of its trade (and if used directly by the company in a process of manufacturing or similar process, in the year of assessment) qualifies for an immediate write-off.
- Regarding the entity’s depreciable assets (other than manufacturing assets) – the entity also qualifies to make use of either the “wear-and-tear” allowance (under section 12E(1A)(a), read with section 11(e)) or the “accelerated write-off” allowance (under section 12E(1A)(b)).
Lastly, remember “to be or not to be” a Small Business Corporation isn’t simply a choice to be made, but it is subject to various prerequisites that must be met – before a SBC will be able to reap the fruits of the available tax incentives.
For more information kindly send an email to Chantél van der Merwe at firstname.lastname@example.org.
SARS Legal Counsel: Tax Guide for Small Businesses 2018/19
SARS Small Business Corporations Webpage
SARS SBC Relief Webpage