Two tips to get the best out of your BEE deal and save thousands on your tax bill
BEE transactions carry tax consequences. But many business owners simply don't know about them and end up paying thousands in tax and penalties. Don't get caught in this trap!
I'm going to show you how to structure your BEE deals to save on your tax bill rather than pay out more.
Changes to the law you WON'T hear about in the news...
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And there are going to be a lot of questions that will need answering this year...
In the coming months the tax law will undergo a number of significant changes.
The majority of these will affect the duties of tax professionals and, in particular, their liability for offences committed under their watch.
But you won't hear about these changes on the six o'clock news. You'll hear them here...
The savings can be achieved in two ways:
For example, the business owner has earned R1 million per year as a director, but now he sells all his shares and retires.
You defer the tax payment date to a future year. This automatically makes it relatively cheaper because of the decline in Real value of money. Paying R100 30 years ago was a lot more expensive than paying R100 today.
Tax savings can be achieved by delaying the tax due into a future tax year when hopefully your taxable income will be lower. This means the taxable gain will be taxed at a lower rate!
If he's taxed this tax year, he'll pay Capital Gains Tax (CGT) at the 40% rate, but if it's next year, he could pay CGT at a much lower rate because his taxable income will probably be lower than the tax bracket at 40%. Not to mention, delaying having to pay tax also means that you can possibly earn interest on that money you didn't have to pay SARS.
Instead of not getting paid for the shares by the purchaser, and having to pay tax, you are allowed to delay paying tax. What do you do with that money you would have paid over to SARS? You can invest it or something until the tax is due.
But, the most important element for your BEE scorecard is ownership. I.E. who owns the company?
If your annual turnover is over R10 million, you HAVE to be empowered
But how do you know if your company is obliged to change its ownership structures in accordance with the BEE rules?
That depends on the annual turnover of your business.
How to make yourself invisible to SARS
The key to reducing how much tax you pay is staying off SARS' radar.
SARS has conducted R1.8 million audits. They've added 100s of new tax collectors and auditors to their payroll and each one has his own collection targets to meet. This means two things:
But there are 139 perfectly legal ways for you to make yourself invisible to SARS. Here's how…
If you're not compliant, your chances of an audit this year have just doubled, and
You will pay more in penalties.
How to transfer ownership, to introduce empowerment into your business
You can transfer ownership of a company's equity by:
I'm about to share advice that will maximise your tax relief when you sell shares. But before we can look at this tax relief, let's recap some tax basics.
Disposing of the shares in the company by either selling your own shares or issuing new shares; or
The sale of a business by the company, usually as a 'going concern', to an entity that complies with the above target.
You include an amount in your income when it accrues to you - whether or not you've actually received payment.
The same applies when you incur an expense. But this creates headaches when it comes to BEE deals.
Because it means you'll only have the cash in hand to pay tax on the income when you eventually get payment. You'll also only be able to claim a tax deduction for your BEE-related expenses when you finally get payment.
For example, if you sign a BEE deal on 12 August 2015, that's when the payment for the deal accrues to you. And that's when SARS comes after you for the income tax on the deal.
But if the new partner only pays up on 31 August 2016 (the next tax year), then you won't have cash to pay the tax, until then!
Your saving grace…
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Here are two tax breaks that will help you get the most out of every BEE deal!
Tip #1: Make sure your BEE transaction meets SARS' eight requirements and claim tax relief when you need it most.
Tip #2: Hold onto shares for three years to shrink your Capital Gains Tax bill.
With these two tips, your next BEE deal will cost you less in taxes AND keep SARS penalties at bay.
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