There are two sections (summarised below) of the Income Tax Act that can give small businesses certain tax advantages over larger businesses.  Both these sections are subject to a number of conditions and are thus not applicable to many small businesses.  However, where they are applicable, the tax savings can be reasonable.

Turnover Tax for Micro Business

Turnover tax is applied to a businesses’ gross turnover at rates ranging from 0% to 3%.  No deductions are allowed for expenses.  Natural persons, companies and close corporations can all qualify for turnover tax.  To qualify the business has to meet the following main criteria:

It must have turnover / gross income of less than R 1 million per annum (rental income, royalties and interest do not qualify as turnover);

  1. The owner must not have any share in any other business;
  2. A business offering a professional service is generally excluded; and
  3. The person must not be a personal service provider.

Small Business Corporations (SBC)

Up to a certain level of taxable income (currently R 550,000) small business corporations enjoy a special rate of tax which is lower than the standard 28%.  In addition they can benefit from certain accelerated wear and tear allowances.  Only corporate entities can qualify not natural persons.  The main criteria to be met by an SBC are as follows:

  1. It must have turnover / gross income of less than R 20 million per annum;
  2. All the shareholders must be natural persons;
  3. Income must not be from a personal service (e.g. legal or financial advice) unless the SBC employs 3 or more full time unconnected employees engaged full time in the business providing the service; and
  4. None of the shareholders/members must have an interest in any other business other than shares in listed companies.

We have attempted to summarise these two sections above but suggest if you are interested in investigating whether they are applicable to your business or not please contact us.