[Question] New business

[bodec]

I have a few questions:

1. Should I try and find a shelf CC or just go the pty route from the start?
2. Can I buy/register a cc/pty before start-up or is it done simultaneously?
3. How does dividend tax work? Do the company pay 28% tax on profit and then an additional 15% dividend tax? This does not make sense to me.

I still have plenty questions which will be asked in the next few months.

[bodec]

4. I have 2 vehicles that are paid off. When I start the business they will be used in the business. Must the business buy the vehicles from me or what would be the best?

[CLIVE-TRIANGLE]

1. Should I try and find a shelf CC or just go the pty route from the start?

I doubt you'll find any shelf cc's anymore, so use a pty.

2. Can I buy/register a cc/pty before start-up or is it done simultaneously?

You can do either way, but save yourself the trouble and get the incorporation in place.

3. How does dividend tax work? Do the company pay 28% tax on profit and then an additional 15% dividend tax? This does not make sense to me.

Yip thats right. In reality, there are tax breaks for small companies (sbc) so the likelihood of you immediately being in the 28% bracket is remote.

Remember that the 15% dividend tax is actually paid by the recipient of the dividend; the shareholder.

[bodec]

Thank you. So you need to find the best balance between your salary and dividend for optimal tax benefits....
Must the company not pay the dividend tax before paying it to the shareholder?

[bodec]

Yip thats right. In reality, there are tax breaks for small companies (sbc) so the likelihood of you immediately being in the 28% bracket is remote.

What is the annual turnover for sbc, 14 or 20 mil?

[wynn]

4. I have 2 vehicles that are paid off. When I start the business they will be used in the business. Must the business buy the vehicles from me or what would be the best?

I would leave the vehicles registered where they are and lease them to the new Pty, that way if the Pty goes belly up you at least retain the vehicles.

[dellatjie]

4. I have 2 vehicles that are paid off. When I start the business they will be used in the business. Must the business buy the vehicles from me or what would be the best?

I agree with Wynn. And then, I would rent the vehicles to the company, as you can then deduct all expenses related in your personal name as well, so as to minimize your tax liability.

What is the annual turnover for sbc, 14 or 20 mil?

20 Million. Refer: Income Tax Act section 12E

[Greig Whitton]

Yip thats right. In reality, there are tax breaks for small companies (sbc) so the likelihood of you immediately being in the 28% bracket is remote.

The Small Business Corporation tax structure may not be around for very much longer if National Treasury's plan to replace it with a tax rebate is approved. Assuming the change goes through, it will take effect from 2016. Either way, you would need to satisfy all of the SBC registration criteria (which are frustratingly complex and disqualify many SMMEs).

[flaker]

I would leave the vehicles registered where they are and lease them to the new Pty, that way if the Pty goes belly up you at least retain the vehicles.

I'm not sure if it will be that easy. Is the lease income in the individual's (reg owner) name not be construed as income & subject to individual tax?

[CLIVE-TRIANGLE]

The Small Business Corporation tax structure may not be around for very much longer if National Treasury's plan to replace it with a tax rebate is approved. Assuming the change goes through, it will take effect from 2016. Either way, you would need to satisfy all of the SBC registration criteria (which are frustratingly complex and disqualify many SMMEs).

You're right, and the proposed rebate does not even come close. I'm sure it will be approved and I'm sure half the sbc's out there will suddenly be making losses

[dellatjie]

@Flaker, yes the lease income will be taxable in the individuals' name, but there are the following advantages:

* Every individual gets a primary rebate on taxable income of R70 700 per year (2015);
* The individual can deduct expenses such as repairs and maintenance and finance charges from income received, as it will now be incurred in the production of income.

That being said, one will have to look at the whole situation, ie. the taxable income of the company/CC, remuneration already received by the individual and so on.