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Thread: Tax structure for Close Corporation operated from Member's Home?

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    Tax structure for Close Corporation operated from Member's Home?

    If a member of a CC operates their business from their private home, how does one go about structuring that?

    The costs (bond interest, rates, utilities etc) are in the name of the member as the property is held in their personal name. The obstacles I can't get my head around are:

    1. I can't claim Home Office Deduction on their member's personal tax return. They earn Code 3615 income (directors/members salary) and SARS have denied this in the past and issued additional assessment upon review.

    2. I can't raise rental invoices from the member personally to the CC, claim the expense of those invoice in the CC and their declare 'local trade' on the Member's personal tax return with income and deductions (for specific use area) at equal value to nil out. The reason being is that it is primarily the private residence and by 'renting' space out of it the member will then change the use and loose the Capital Gain concession as a primary residence when they sell one day. I also read an article of this issue coming up with SARS in the past.

    The CC genuinely operates out of space exclusively setup and used for the business' purpose, but I don't know how to include the (prorate) property costs for this into the CC's accounts and properly back it up with supporting vouchers in case of review/audit.

    Any guidance or advice would be greatly appreciated :-)

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    Gold Member Houses4Rent's Avatar
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    I take 10% of my houses operating costs and make it a business expense. I estimate I use about 10% of the house for business purposes. No idea whether this is legit though.

    Addition: I do not charge/receive any rental at all.
    Last edited by Houses4Rent; 03-May-14 at 06:50 PM.
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    Hi Ryan

    As you no doubt realise, the member and the cc are separate tax entities. As matters stand, the cc has not incurred an expense in respect of it's occupation, hence there is no deduction available to it.

    The home office deduction is only available against income from trade or profession.

    The only other alternative is to raise an invoice. Your capital gains concern is valid (even if more often than not ignored) and if the numbers don't justify it then it is a stalemate. Just be aware that for CGIT the same apportionment is used. By that I mean the entire concession is not lost; only that in respect of the portion that generated the income. But I imagine that the loss on the rental activity would be negligible in the grand scheme of things and probably wont justify the effort.
    Last edited by Dave A; 15-May-14 at 01:17 PM. Reason: fixed typo

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    Just some thoughts that I have had about this thread.

    The reason you wish to raise an expense to the CC as rent, is that you wish to reduce the profit the CC is making, in order to pay less tax, otherwise what is the point of it.
    On the other hand, SARS, wishes to get a portion of any profits into it's coffers, as part of facilitating the infrastructure that allowed your company to make a profit, after all the infrastructure has a cost to create and maintain.

    Now as the owner of the 'building/office', by charging rent, has incurred an income, and by all rights needs to declare the income to SARS, and effectively pay a percentage of the profit to SARS.

    In your case you being the home owner, and the main member of the CC, creates a dilemma. On the one hand, the CC has shown less profit due to the expense of rent, on the other, the owner of the property has incurred an income from the rent. Whilst the CC now pays a little less tax on the reduced profit, the owner of the property will pay tax in the income, because it being a primary residence, you can not claim all the other expenses in maintaining the property as it is not a rental based property or business. In SARS eyes, the total rental income is fully taxable at whatever rate it may be, most probably it will fall under personal income.

    Effectively I would not try and create the rental as an expense to the CC, it just has too many far reaching implications, which may arise into the future, causing a reassessment of the property, and may incur redoing books with back payments and penalties and other unproductive requirements.
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    Thank for the replies all.

    Not the answers I was hoping for, but very helpful and appreciated. I know how to proceed and I'm not going to try to recover any premises costs in the CC.

    Thanks again :-)

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