Small business Corporation (SBC)

 

 

Companies and CCs that meet certain requirements qualify as an SBC, their status of the company is not affected but rather just qualify for reduced taxed rates. The business is treated as an SBC when its tax return is filed to allow it access to reduced tax rates. A sole proprietorship cannot be an SBC.

 

Requirements to Qualify as an SBC

 

  • All shareholders, members, or partners are natural persons
  • The owner, any partner, shareholders, members, and the business do not hold shares/interests in any other business except for some listed types of companies such as a body corporate.
  • The gross income of the company may not exceed 20 million for the tax year
  • The business cannot generate more than 20% of its income (including capital gain), from investment income and personal services, except for some listed types of companies such as a body corporate.
  • The business may qualify for SBC if it provides personal services and if:
  • The personal services are not provided by the person holding interest(shares), in the company; or
  • The business employees 3 or more unconnected full-time employees

 

 

Personal services examples: any service rendered such as accounting, legal, educational, or architecture.

 

 

SBC Tax Rates

Example of a tax calculation for an SBC

 

Let’s say the taxable income is R 600 000, this falls into the 3rd ban of taxable income

 

Tax Calculation:

R 600 000 – R 550 000

= R 50 000 x 21%

= R10 500

 

Taxable income is now R10 500 + 19 163 (the amount of tax as being 3rd band to be added)

 

Tax Payable to SARS by the SBC is R 29 663 (for a taxable income of R 600 000).

 

Compared to the flat rate of 28%, thus business would have paid 168 000 (R 600 000 x 28%), The SBC saves a tax liability of R 138 337 (R 168 000 – R 29 663).

 

Above the tax benefit, an SBC can benefit from wear and tear deduction allowed for purchases of assets. 50% deducted om the first year, 30% in the second year, and 20% in the third year. For plant and machinery purchased for manufacturing, the full amount may be allowed as a deduction in the year purchased and brought into use.

 

 

Micro businesses

 

Micro businesses with an annual turnover of R 1 million or less may qualify for Turnover Tax, Turnover Tax is a simplified system aimed at making it easier for micro business to meet their tax obligations. The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax, and Dividends Tax for micro businesses. So qualifying businesses pay a single tax instead of various other taxes. It’s elective – so you choose whether to participate A micro business that is registered for turnover tax can, however, elect to remain in the VAT system (from 1 March 2012).

 

The following taxpayers may qualify as a micro business:

 

  • Individuals (sole proprietors)
  • Partnerships
  • Close corporations
  • Companies
  • Co-operatives

 

Turnover tax is a simplified system aimed at making it easier for micro business to meet their tax obligations. The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax, and Dividends Tax for micro businesses. A micro business that is registered for turnover tax can, however, elect to remain in the VAT system (from 1 March 2012).

 

Requirements to Qualify as a Micro Business

 

  • Less than or equal to R1 million turnover for the year of assessment.
  • The business is not a “personal service provider” or a “labour broker”
  • The business type is a: sole proprietor, partnership, close corporation, co-operative, or company
  • All shareholders, members, or partners are natural persons
  • The business year end is in February
  • The owner, any partner, shareholders, members, and the business do not hold shares/interests in any other business except for some listed types of companies such as a body corporate.
  • The business declares that income from “professional services” and “investment income” is not expected to exceed 20% of the total receipts for the tax year.
  • If you are a sole proprietorship or partnership, do you declare that the income from “professional services” is not expected to exceed 20% of your total receipts during the tax year.
  • Income from the disposal of assets by the business over the current year and past two years is not expected to exceed R1.5 million in total.

 

Tax rates: https://www.sars.gov.za/tax-rates/income-tax/companies-trusts-and-small-business-corporations-sbc/ 

 

How to request a Turnover Tax Return

 

  • The TT03 form can be obtained via the following SARS channels:
  • By visiting a SARS branch
  • By completing the TT03 form online

 

How to submit the return

 

  • The TT03 can be submitted via the following channels:
  • Book an appointment to visit the nearest SARS branch or
  • Or email SARS

 

It is important to bear in mind that SBC is taxed on taxable income and not on taxable turnover. It is best to do an analysis to determine if a micro business or SBC would be the best option for your business.

Small business Corporation (SBC) & Micro businesses