All the answers to your unique business lifestage questions
Like death, taxes are a certainty of life. One of the upsides of owning a business is that the law allows you certain tax breaks. Implement the following tips to make sure SARS does not get more than its due.
- Diarise due payment dates: This helps to avoid paying interest and penalties.
- Claim maximum retirement annuity (RA) deductions: The Income Tax Act allows for an additional deduction of R1 800* per year for RA contributions that are in arrears. Arrange with your RA fund to make an extra contribution for a previous year in which you did not claim your maximum deduction. You can then claim this payment during the current tax year.
- A tax shelter business: If you run a business as a sole proprietor from home, you can claim a range of legal deductions, eg, a portion of your mortgage bond interest, telephone bill, and entertainment and vehicle expenses. However, the business must generate a small income and have prospects for making a profit in the future.
- Channel income to your children: A child is taxed in his/her own right, with a threshold of R54 200* per year. If you pay a salary of less than this to your child for work done, you can claim it as a business expense and your child will not be taxed. Bear in mind that salaries must be in relation to the service rendered, and the child must be 15 years or older.
- Restructure your debt: Create an "owner's loan" by selling assets to your business on credit. Use the money the business pays you to settle personal debt, while the business claims the interest it pays on the loan it took to buy the asset. This can be tricky though, so get advice from a good tax consultant first.
- Separate CCs: When you sell an asset (eg, a vehicle) you are taxed on the profit you make that is above the tax write-off value. If this asset is in the name of a separate close corporation (CC), you can sell the whole CC. According to the normal tax rules, the profit made is a capital gain and Capital Gains Tax (CGT) applies. CGT applies only to a portion of that profit, rather than the full amount. Bear in mind, however, that you can no longer register new CCs, so this tip only applies to existing CCs.
- Split the income within your family: For example: Mr X draws a salary of R250 000 from his CC, and pays income tax of R45 504,00, leaving an after-tax income of R204 496,00*.
If he employs his wife and splits the income equally between the two of them, the total tax bill is R25 488,00 (R12 744,00 each). This leaves the family with an after tax income of R224 512,00 - a saving of R20 016,00*.
* These calculations are based on the 2012 tax tables for adults under 65 years.
A lower rate of tax applies to people over 65.