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Do you know the difference between capital and revenue? If you don't you could get in trouble with SARS

by , 11 June 2014
Let's assume that, last month, your company earned some money and quite a bit at that. But now, it's time to pay the taxman and work out what you owe him this month.

The confusing part of this is not all your income came from the same things. So your sales profits should have a different tax to your capital. Right?

To ensure you've taxed your different incomes correctly, you have to clearly know the difference between your capital and your revenue.

Let us explain...

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Two reasons why you need to know the difference between capital and revenue 

Firstly: Your Capital Gain Tax rate is lower than your income tax rate. So it's in your company's best interest to ensure you classify your profits correctly or you may pay more tax than you should.
 
Secondly: SARS treats capital and revenue losses differently. You can offset your revenue losses with your revenue profit and capital profit. But you can't offset your capital losses with your capital profit. 
 
That's why you need to know the difference.
 
So let's look at the difference between your company capital and revenue so you can avoid any mistakes.
 

The difference between revenue and capital explained

The difference between company revenue and capital is quite easy. 
Revenue is any income you earned from buying and selling goods, offering services, rent or interest.
 
Capital is the structure you use to earn your income.
 
For example, the money you get from selling bread is revenue and the stove you bake it in is your capital.
 
Now that you know the difference, ensure you classify your profits correctly to avoid tax complications later.
 
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