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How to ensure your business qualifies as an SBC

by , 30 October 2013
Small Business Corporations (SBCs) enjoy lower tax rates than other companies. Do you also want these benefits? If so, read on to find out how to ensure your business qualifies as an SBC so you can DOUBLE your tax benefits.

SBCs have more tax benefits than other businesses.

The good news is your business can also enjoy these benefits if it qualifies as an SBC.

You'll qualify as an SBC if you do the following:

One of the requirements for SBCs is that it can only be a Close Corporation (CC), cooperative or a private company.

The Practical Tax Loose Leaf Service explains that the ownership requirements can be difficult to meet as entrepreneurs often have more than one company or CC set up.

So can you meet them?

One way of doing this is for a Trust to be a shareholder of a company, or a member of a cooperative.

The CC Act allows a Trust to be a member of a CC. This could allow you to use it to structure your interests and enable one of your ventures to benefit from being an SBC.

This'll benefit you if, say, you're a member or shareholder of three CCs, or companies or any combination.

Let's say one of the three is booming but, because of your membership in all three, you aren't able to qualify as an SBC.

You can then shift the membership of two CCs to a Trust and retain your membership within the CC that would benefit most from the incentives of being an SBC.

The Loose Leaf Service urges you to take care with your planning and remember that where a Trust is a member or shareholder of the company or CC, you won't be able to enjoy the benefits of being an SBC.

You'll only be an SBC if you meet the following requirements

According to Professional Accountants & Tax Consultants, companies that meet all of the following requirements will be able to qualify as a Small Business Corporation:
 

  1. All shareholders or members must be natural persons.
  2. All shareholders hold no shares in any other private company.
  3. All members hold no members' interest in any other CC.
  4. Gross income for the year of assessment doesn't exceed R14 million.
  5. Not more than 20% of the gross income and all the capital gains consist collectively of investment income and income rendering a personal service.


Does your business qualify? If so, make sure it's structured correctly so you can reap the tax benefits.



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