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Do you make the grade? You'll only be an SBC if you meet the following requirements...

by , 01 November 2013
If you want your business to have the same tax benefits that Small Business Corporations (SBCs) enjoy, there's a catch. Your company must meet certain requirements to qualify as an SBC...

In terms of the Income Tax Act, your company has to meet all of the following requirements before it can qualify as an SBC.

Do you tick all the boxes?

Three requirements your company must meet to quality as an SBC

#1: Ownership requirements
According to the Practical Tax Loose Leaf Service, to qualify as an SBC, your company must be a Close Corporation (CC), a private company registered under the Companies Act, a cooperative or a society AND:

  • Shareholders or members that are natural persons must hold the entire shareholding at all times during the tax year;
  • Shareholders must hold the shares for their own benefit and not as nominees;
  • Shareholders or members mustn't, at any time during the tax year, hold any shares or any interest in any other CC, company, cooperative or society other than:
  1. A listed company;
  2. Any portfolio in a unit trust scheme;
  3. A body corporate established in terms of the Sectional Titles Act;
  4. A share block company established in terms of the Share Blocks Control Act;
  5. An association of persons, cooperative, close corporation, trust and non-profit company established for the benefit of its members and no distribution of any of its funds to its shareholders or members is permitted;
  6. Less than 5% of the interest in a social or consumer cooperative or a cooperative burial society, or any other similar cooperative if all of the income derived from the trade of that cooperative during any year of assessment is solely derived from its members;
  7. Any friendly society;
  8. Less than 5% of the interest in a primary savings cooperative bank or a primary savings and loans cooperative bank
  9. A venture capital company
  10. Any company, CC or cooperative that hasn't carried on any trade and hasn't owned assets worth more than R5 000 during the year;
  11. Any company or CC that has taken the steps to liquidate, wind up or deregister. But, this exception will not apply if any steps are taken later to prevent liquidation, winding up or deregistration.

#2: Turnover requirements
There are two turnover requirements:

  • The gross income may not exceed R14 million.
  • The R14 million limit means the gross income received or accrued for a full period of 12 months (a full tax year).

#3: Business activity requirements

  • The company mustn't be a personal service provider.
  • No more than 20% of the gross income of the company may consist of investment income and/or income from the rendering of a personal service.

So do you make the grade? If so, your company is an SBC and you'll enjoy lower tax rates than other companies.



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