Why is this important? Because there are certain tax benefits available to being a SBC whether you're going through the process of registering a business or areregistered already.
SMME also have certain tax benefits. By this we meangrants, incentives or development programmes.
And the one that gets the most tax benefit is a SBC.
Here's how to check if you qualify.
These are the three requirements you must meet to qualify as an SBC
Your company has to meet all the following requirements before it can qualify as an SBC (Section 12E of the Income Tax Act):
1. Ownership requirements;
2. Turnover requirements; and
3. Business activity requirements.
Let's look at each of these in more detail.
1. Ownership requirements
Your business must be a close corporation, any private company registered under the Companies Act, a cooperative or a society AND:
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• 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 close corporation, company, cooperative or society other than:
– A listed company;
– Any portfolio in a unit trust scheme;
– A body corporate established in terms of the Sectional Titles Act, 1986;
– A share block company established in terms of the Share Blocks Control Act;
– 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;
– Less than 5% of the interest in a social or consumer cooperative or a cooperative burial society (Section 1 of the Cooperatives Act), 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;
– Any friendly society (Section 1 of the Friendly Societies Act);
– Less than 5% of the interest in a primary savings cooperative bank or a primary savings and loans cooperative bank (Cooperative Banks Act);
– A venture capital company (Section 12J, Income Tax Act);
– 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;
– Any company or CC that has taken the steps to liquidate, wind up or deregister. But, this exception won't apply if you take any steps later to prevent liquidation, winding up or deregistration.
Also, keep in mind that, normally, the company or CC will be disqualified as an SBC due to the ownership rule. Now, after the amendment the ownership exclusion won't apply where the company or CC hasn't traded and hasn't owned assets worth more than R5 000 during the tax year.