Simplifying tax matters and saving tax legitimately

Can a business owner achieve a 200 per cent tax deduction from SARS?

The answer is yes, but there has to be the necessary framework in place. This applies to persons who operate their businesses through close corporations and companies.

Persons who operate their business through a sole proprietorship can also take advantage of this benefit by converting their businesses to companies at little cost.

Remember that new close corporations cannot be formed as the Close Corporations Act of 1984 has prohibited this.

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Incidentally The Companies Act has been relaxed so that audits are no longer necessary and the legislation is simpler.

Requirements for this 200 per cent deduction to be realised, businesses operating through a close corporation or company have to be registered for PAYEand in certain circumstances Unemployment Insurance.

Remember that companies and close corporation are separate legal entities with a separate legal personae. At the start of a tax year in the planning process the member/s/director/s can award themselves a travelling allowance which will lower the profit of their businesses. Car allowances do not attract unemployment insurance but do attract P.A.Y.E. on a monthly basis. The business also has to be registered on The Easyfile Employer programme which ultimately reconciles PAYE payments made and enables the IRP5 certificate to be prepared and issued at the end of the tax year.

The travel allowance is taxed at 80 per cent in terms of the Income Tax Act as per tax tables but at a minimum of 18 per cent.

Obviously the member or director must have a motor vehicle in his name and undertake business travelling for this plan to work successfully.

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Having already obtained a 100 per cent deduction in the business the member/director can then complete his personal tax return and can obtain a further 100 per cent deduction for travelling and the P.A.Y.E. paid will be refunded to him if the travelling allowance is fully utilised.

If a salary is paid to the member/director PAYE may or may not be payable but 2 per cent UIF is payable and is deductible as an expense in the business.

One should remember that the corporate tax rate is on a flat rate of 28 per cent whereas an individuals tax rate is on a sliding scale of between 18 per cent and 41 per cent. If the member/director’s tax rate is more that 28 per cent he can award himself a higher salary which will result in an overall lower tax rate in terms of the individual tax table.

It is prudent that owners of businesses conduct such planning processes at the beginning of tax years so they can enhance their tax savings annually. Where tax can be saved members/directors/ and shareholders can be gratified by undertaking this exercise.

Martin Baker s.a.i.p.a.

Martin Baker, a Highway area resident for 50 years and educated at Kloof schools will unpack taxation for the man on the street.  

“Tax has always been a subject that I have enjoyed and I enjoy assisting persons who make errors in paying too much tax to SARS,” said Martin.

“I worked for SARS for 15 years and studied at night classes after work to qualify, and became an avid reader of tax court cases and gleaned a substantial knowledge from that source which now allows me to conduct my business effectively.”

tax2solutions@gmail.com

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