How To Save Company Tax In 2010

[derekjay]

Hi Eveyone

Since this is the tax section of the forum, and Feb 2010 is around the corner, I thought I would let you know about our upcoming course. I do apologize in advance if this is considered spamming.

Save Company Tax In 2010 - Minimize Your Tax Bill & Maximize Your Profits

February 2010 is around the corner, which means it’s almost SARS return time! Would you like to learn how to potentially minimize your tax bill and maximize your profit? Then the "Save Tax In 2010" course is for you.

The course is presented by Jason Smith, a member of the SA Institute Of Tax Practitioners and the SA Institute of Professional Accountants. Jason himself is a small business owner and practicing accountant specializing in the field of South African small business. Jason is dedicated to educating small business owners and entrepreneurs in his field of expertise.

For more information on the course, or to register, you can visit:

http://www.biztraining.co.za/course-information.html

Please feel free to ask any questions.

Derek

[Dave A]

It is a bit spammy if you don't share even one tip
Anyone would think all you want is for us to attend the course...

[derekjay]

My apologies

Company Tax Saving Tip #1 - Do you qualify as a small business corporation?

Small Business Corporations (SBC) – Being classified as an SBC is very favourable for start-ups and small businesses thanks to the low tax rates applicable. In order to qualify as an SBC, your business needs to meet the following requirements:
• All shareholders must be natural persons for the entire year of tax year.
• No shareholders may hold shares in any other companies. There are exceptions, but these will in most cases not impact the small business owner.
• The gross income of the company may not exceed R 14 million per annum.
• No more than 20% of the gross income may derive from investments or income rendered from providing personal services (either as a personal service company or trust)
• A company which provides personal services as defined in the Tax Act, but employs 3 or more full-time employees (not related to the owner), shall be excluded from being classified as a personal service company for the 20% rule mentioned above.
The key benefits of being SBC coded are the great tax breaks and wear and tear allowances that SARS offers. As opposed to the standard 28% taxation applicable to other companies, SBCs enjoy the following taxation rates and wear and tear allowances:
• 0% Tax up to R54,200
• 10% Tax between R54,201 and R300,000
• 28% on R300,001 and above

Example: A company with a taxable profit of R700, 000 would normally have a tax bill of R196, 000 based on the current corporate tax rate of 28%. Had this company been SBC coded, they would only pay R136, 580, equating to approximately a 30% saving.

Wear and tear (depreciation) granted in full for new manufacturing depreciable assets in the year of purchase and at 50%/30%/20% over 3 years for non-manufacturing depreciable assets.

[Marq]

Excellent....now I'm looking forward to Company Tax Saving Tip #2.

Dave meant to say at least 10 tips to prevent the spam monitor from kicking in...Didn't he?

[Dave A]

Just trying to get some "fair trading" going here

Self promotion is a lot more palatable when it comes with genuinely useful information.

[Marq]

Quite right!!

Which is why I am looking forward to the next part in this series.

[derekjay]

Company Tax Saving Tip #2 - Get Out Of The PSC Trap

If your business has been classified as a personal services company (PSC), I'm sure you're aware of your heavy tax rate of 33% as opposed to the 28%.

The simplest and easiest way to get your way out of this trap, is to employ at least 3 non-related (not related to the owner or shareholders). This automatically pull you out of the PSC classification and bring you back to standard taxation.

Obviously, the viability of such a move would depend completely on your turnover and what makes sense financially. Do the maths and see if it works in your scenario.

[Peter Parker]

Tax Planning is an art under-girded by the science of the tax code and proper planning.

Here are some useful tips and can be adopted to save tax:

1. Bring forward the long overdue office repair, decorating projects or marketing campaign and charged them in current year.

2. Make the most of use capital allowances such as capital work in progress, Machinery, and the best is research and development expenditures.

3. Re-structure dividend and bonus policy to directors and employees.

4. Minimize capital gain cost

5. Get the right receipt whenever purchases make by the company

[Dave A]

I must say I like these tips - so much better and more practical from a business perspective than the "advice" I was given by a financial planner once years ago.

To give you an idea - here is what he wanted me to do:
Put R20 000.00 into a Retirement Annuity with a 10 year maturity. This would save me R8 000.00 in tax (based on a marginal rate of 40%). The argument is that the RA was only costing me R12k and the taxman was effectively sponsoring R8k.

So let's ignore the cashflow implications here for a moment and look at whether this was good advice. I asked him to do this excercise:

First, give me the payout based on a 10 year RA of the same amount that matures today.
Next, pick any blue chip share's performance over the last ten years. If I bought R12k worth of shares ten years ago, tell me what they would be worth today.

He never came back to me

[derekjay]

@Peter - thanks for your valuable input.
@Dave - I am glad to hear that we are bringing value to the forum.

Without sounding like I am trying to punt our courses, I must express the difficulty of providing "generic" tax advice on the forum. Every business has its own unique tax implications and prospective "smart moves" which is why we make a course out of it - so that we can discuss the unique businesses, etc.

That said, I will continue to do my best to dispense "generic" advice on the forum and do hope that I can bring as much value as possible to the table

[Dave A]

Most times when I go to a seminar, I'll listen to hours of presentations and walk away with perhaps one or two really useful bits of info. But those one or two bits were worth it

[derekjay]

Quite correct. A bit like any education (books, etc) - But that's what its all about