Tax Planning for Your Business

There are only two certainties in life: Death and Taxes! Who would have thought that when these words were penned by Benjamin Franklin in 1789 that they would consume so much of our time as business owners.

While avoidance is commonplace and an accepted practice in dealing with both these issues, unfortunately the same cannot be said for evasion,which is not an option!

The sad truth is, the majority of small business owners spend far too much time worrying about what they might pay in Income Tax, when in reality, you only have to worry about income tax if you make a profit of more than R70 700 a year and sadly the majority do not.

With that said, tax planning is a very important tool that is often overlooked during the initial set up stage of a business. Below is a simple illustration of the benefits of being a small business corporation:

Is your business viewed as a Small Business Corporation by SARS?

Is your business Turnover less that R20 million per year?
Are the shareholders in your business all natural persons?
Do you only own your one business?
Does less than 20% of your turnover come from “investment” income?
Is less than 20% of your income from rendering a “personal” service?

If you have answered YES to all the above questions your business could be making massive Income Tax savings.

Are the Small Business Corporation Income Tax Savings worth it?

The table below will illustrate the savings:

Taxable Profit	Small Business Tax	STD Business Tax	Tax Saving
0 – 70 700	0	19 796	19 796
70 700 – 365 000	20 601	102 200	81 599
365 001 – 550 000	59 451	154 000	94 549
Above 550 000	28%	28%	Nothing from this point

 

Besides the Income Tax savings, how else to you gain from being a Small Business Corporation?

• SBC’s are allowed to depreciate their productive assets at a faster rate than other businesses. Depreciation, although not a physical cash cost, is captured as an expense on your income statement thereby reducing your profit and as you can see from the table above, smaller profits equals less tax.

• Shareholders of SBC’s who pay the maximum rate (i.e. 40%) on their income, have the opportunity to gain a tax benefit by using a mixture of salary and dividends.

As you can see the correct tax planning will save both you and your business money, therefore when chatting to your advisor be very open about your goals and how you plan to reach them.

The more information we have the better we can assist you with a suitable plan, however please bear in mind that although we advise you not to obsess about your tax planning, you should review your plan every six months at least.