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Author: Amanda Visser (Business Live)

Tax experts say small business owners have three options; a salary, dividends paid from after-tax profits and borrowing from the company.

Many people are under the impression that owning a business makes life easier. The harsh reality they tend to forget is that bosses have to finance themselves and everyone else working for them.

The decision on how to reward a business owner can be quite tricky, mainly because of the tax implications if the wrong choice is made. It could affect not only the bosses, but also those who are dependent on them for a living.

Tax experts say small business owners have three options; a salary, dividends paid from after-tax profits and borrowing from the company.

Chris Herbst, team leader at CH Consulting, says the option of using a loan account without paying a salary or a dividend “is almost never a good option. Some directors are under the impression that this option does not attract tax. They are wrong.”

The first factor to consider is the interest rate the company charges for the loan. In most cases, the company does not charge any interest.

Herbst says this implies that the owner is receiving a benefit due to the connection with the company. This equates to remuneration and, like everybody else, the owner must pay tax on the remuneration.

The Income Tax Act deems interest free or low-interest loans as a dividend. If the boss wants to take all the annual taxable profits, of say R400,000 as a loan, the company will pay 28% on the profits (R112,000).

If no interest was charged, the deemed dividend on R400,000 at 7.5% (the official rate of interest) will be R30,000. At 20% dividends, the withholding tax amounts to R6,000. The owner will be left with R282,000 and the South African Revenue Service (SARS) will get R118,000. The total effective tax rate will be 29.5%. But, says Herbst, the loan account for the following year will still be R400,000 if the owner does not repay it and the R6,000 dividend tax will again be liable.

Rodney Smith, director at Liandor Financial Accountants and board member of the South African Institute of Tax Professionals, says he also does not advocate loan accounts as a debit loan attracts an ongoing tax as a deemed dividend.

“The value of this deemed divided tax is currently quite low, but nothing prevents SARS from increasing this deemed tax in the future. I see this as a risk.

“Of greater concern is that a debit loan negates the separation between the estate of the firm and the estate of the owner,” he says.

In the case of insolvency, civil claims and employee claims, loans could effectively suck the personal estate of the owner into the pot available to the creditors, as the company will have a loan claim against the owner.

Herbst says his first option for business owners would be to extract a salary as an employee of the company. If the salary is R400,000 (the taxable profits of the company) it is important to remember that the first R195,850 will be taxed at 18%; the second portion of up to R305,850 will be taxed at 26%; and the third portion up to R400,00 will be taxed at 31%. However, the effective tax rate on the R400,000 is 23.24% and the tax payable on the salary of R400,000 will be R92,960.

If rebates or tax credits are ignored, the business owner will earn R307,040, SARS will receive R92,960 from the owner but no tax from the company because all the profits were paid as a salary.

“The main advantage for extracting the profit by way of salary is that the salary decreases the taxable income of the company by the amount of the salary,” Herbst says.

Bowmans tax partner Patricia Williams says the owner’s salary must be market related. If it is not, SARS may consider it to be excessive and disallow the deduction claimed by the company for the salary paid. “Also, a salary that is viewed by SARS as being too low, could give rise to SARS viewing the dividends paid by the company as being for services rendered, and not as a return to shareholders.

“In this case SARS may attempt to subject these dividends to income tax instead of dividends tax,” says Williams.

Another option for paying business owners is the deemed dividend. If it is R400,000, it will attract tax of R169,600 at a total effective tax rate of 42.4%. The company will pay 28% on the R400,000 leaving R288,000, which attracts dividend tax of 20% (R57,600).

Tax Audit Solutions head of global employment, expatriate tax advisory Shohana Mohan says there is no hard and fast rule when selecting a payment option. However, given the difference in tax rates for personal income taxpayers against the rate at which dividend withholding tax is applied, the most common extraction of income happens in the form of declaring dividends.

Mohan says each case is different and the choice made often depends on the business and personal circumstances.

Smith says he too would recommend a salary for business owners, who can maximise their contributions to pension funds and medical aid to reduce their taxable income.

He warns against buying a vehicle through the business accounts for personal use. Many have found the fringe benefit tax attributable to the vehicle to be “shocking and unaffordable”.

Williams says taxpayers often do not keep a proper record of their real business expenses, which are tax deductible, and include travel, entertainment, cellphone or internet expenditure.

This article first appeared on

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The South African Revenue Service (Sars) collected R1.216-trillion for the 2017/18 financial year, representing growth of R72.4-billion, or 6.3%, year-on-year.

This was, however, lower than the R1.217-trillion target set by the National Treasury during the 2018 Budget speech.

The main sources of revenue that contributed were personal income tax, value-added tax (VAT) and company income tax.

Finance Minister Nhlanhla Nene on Tuesday said the 2017/18 financial year had been characterised by distinct and clearly delineated growth patterns.

Until December 2017, revenue in aggregate grew by 6.2% year-on-year.

For the period from December 2017 to February 2018, revenue growth accelerated to between 9.5% and 15.5%, strengthening aggregated year-on-year growth to about 7.3%.

Nene attributed this to an improvement in business confidence to levels last seen in 2015, resulting in an improved profit outlook and provisional payments.

From the above article it is clear that SARS is struggling and in my opinion will push, going forward, more stringent compliance audits to try to mitigate shortfalls in collections.

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Dear VAT Vendor

The Minister of Finance announced a VAT rate increase from 14% to 15% effective 1 April 2018 in the 2018 Budget Speech.

To assist you in preparing your VAT return (VAT201) submission, the South African Revenue Service (SARS) would like to bring the following to your attention:

The new tax fraction applicable from 1 April 2018

The new tax fraction to calculate the amount of VAT is as follows:

Rate of tax 15
________________________________________ =
100 + rate of tax 115

For example, if the VAT-inclusive price (final consideration) is R1 150, the VAT amount is calculated as follows:

R1 150 × 15/115 = R150 VAT

Effect on VAT Vendors:

Vendors should determine when supplies of goods and services are deemed to have taken place and also consider the special rules that apply when there is a change in the VAT rate to ensure that the correct rate of VAT is applied in respect of the supply, the acquisition and importation of goods and services. A comprehensive set of Frequently Asked Questions (FAQs) is available on the SARS website or you can click here to open the document.
How to prepare and submit your VAT201

Vendors whose tax periods span the old VAT rate of 14% and the new VAT rate of 15% (effective from 1 April 2018) will be required to declare these transactions on a single VAT201 return. The most impacted would be the Category B vendors whose tax periods are periods of two months ending on the last day of April 2018. Also impacted are the Category D vendors whose tax periods are periods of six months ending on the last day of August 2018. Category E vendors whose tax periods are periods of twelve months ending on the last day of the year of assessment will also be impacted.

Vendors who have tax periods that span the 14% and 15% VAT rate (Category B, D and E vendors) as well as future tax periods where the rate of 14% is applicable to certain supplies will be required to disclose their transactions as follows:

Output Tax

• for all standard rated supplies where VAT at 15% has been levied, please use the standard rated fields on the VAT201 that you would normally use to declare the output tax.
• for all standard rated supplies where VAT at 14% has been levied, please use Field 12 – “Other and Imported Services” on the VAT201, to declare the output tax.
Input tax

• for all capital and other goods and/or services supplied to you and charged with VAT at a rate of 15%, please use fields 14 and 15 on the VAT201;
• for all capital and other goods and/or services supplied to you and charged with VAT at a rate of 14%, please use Field 18 – “Other” on the VAT201, to deduct the VAT; and
• for all imports, irrespective of whether the VAT was charged at 14% or 15%, please use Field 14A and 15A on the VAT201 to deduct the VAT.
Please note:
• If you are using eFiling for the submission of your VAT201 and have saved a VAT201 for tax periods commencing on or after March 2018, the saved VAT201 will be removed so that the updated VAT201 with the correct rate of tax can be requested.
• The updated VAT201 will be made available soon. Please monitor the website for updates regarding the VAT201.

For more information please visit the Value Added Tax page on the SARS website where you will find guides to help you complete and submit your VAT return, or contact the SARS Contact Centre on 0800 00 7277. You can also send an email to with your enquiries.

March 2018

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Dear Customer,

The Minister of Finance announced an increase in Value Added Tax (VAT) from 14% to 15%, effective 01 April 2018. Our products and services are subject to VAT and therefore the increase in VAT will result in price adjustments.

The updated invoice amounts will be reflected on ALL of our invoices and quotations from 01 April 2018.

We value your continued support.

Should you have any further queries or require further information or clarification, please do not hesitate to contact me directly on email: or you can call us on: 011 312 9250 (Switchboard).


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This is just a high level summary, should you need detailed information kindly email our secretarial team on:

2018/2019 Tax Table

Rates of tax for individuals

Following the changes announced in the Budget Speech on 21 February 2018, the rates of tax outlined below will be effective 1 March 2018.


Taxable Income (R) Rates of tax (R)
​0 – 195 850 18% of taxable income
​195 851 – 305 850 35 253 + 26% of taxable income above
195 850
​305 851 – 423 300 63 853 + 31% of taxable income above
305 850
​423 301 – 555 600 100 263 + 36% of taxable income above
423 300
​555 601 – 708 310 147 891 + 39% of taxable income above
555 600
​708 311 – 1 500 000 207 448 + 41% of taxable income above
708 310
​1 500 001 and above 532 041 + 45% of taxable income above
1 500 000

Tax Rebates:

Primary R14 067
Secondary (Persons 65 and older) R7 713
Tertiary (Persons 75 and older) R2 574

Age Thresholds:

Age Tax Threshold
Below age 65 R78 150
Age 65 to below 75 R121 000
Age 75 and over R135 300

Medical Aid Tax Credits:

Medical Aid Tax Credits
Main Member R310
First Dependent R310
Additional Dependents R209

Subsistence Allowance:

Subsistence Allowance (RSA)
Meals and Incidentals R416
Incidentals Only R128

Prescribed Rate Per Kilometre:

Prescribed Rate Per Kilometre
Prescribed Rate Per Kilometre is R3.61 (2017/18: 3.55)


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Are your declarations and refunds in line with the Vat Act and Tax Administration Act? Its all nice when we get the refunds but there could be comebacks.

“South African Revenue Service (Sars) commissioner Tom Moyane has been accused of illegally authorising the payment of a R70 million VAT refund to a Gupta-linked company, Daily Maverick’s investigative unit Scorpio reports.

According to the report, Oakbay Investments director Ronica Ragavan emailed Moyane on May 22 last year requesting him to pay the first of three VAT payments amounting to R70 million into Terbium Financial Services’ account for the benefit of Oakbay.

The Guptas appointed Terbium as a payment agent to manage the payment of staff salaries after the country’s four major banks in 2016 severed ties with the controversial family accused of state capture and corruption.

The payment of the VAT refunds was reportedly despite objection from several Sars officials who warned Moyane and its chief officer of legal counsel Refiloe Mokoena that the law doesn’t permit the payment of VAT refunds into third party accounts to prevent fraud and money laundering.” – News24

M Kalaluka

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Its that time of the year again, when we need to complete and submit income tax returns (ITR12) to Sars.



* If you are under the age of 65 and received an income of more than R59,750 from one or more sources or received more than R120,000 from a single source of employment, during the year of assessment 1 March 2011 to 29 February 2012;

* If you are aged between 65 and 75 and received an income of more than R93,150 from one or more sources or received more than R120,000 from a single source of employment, during the year of assessment 1 March 2011 to 29 February 2012;

* If you are over the age of 75 and received an income of more than R104,261 from one or more sources or received more than R120,000 from a single source of employment, during the year of assessment 1 March 2011 to 29 February 2012;

* If you:

– Conducted any trade in the Republic of South Africa (“Trade” is summed up as, including every profession, trade, business, calling, occupation or venture, including the letting of any property, but excluding any employment income.);

– Received an allowance such as travel, subsistence or office bearer allowance as per section 8(1)(a) of the Income Tax Act;

– Hold any funds or assets outside South Africa that a value of more than R50,000;

– Have a local capital gain/(loss) exceeding R20,000;

– Received any income or capital gain in a foreign currency;

– Held any rights in a controlled foreign company;

– Received an income tax return or you have been requested to submit ITR12 for the year in question.



There are various ways in which you can complete and submit your return;

1. eFiling: The most convenient and quickest way of completing and submitting tax ( )

2. Branch: Filing electronically at a Sars branch (check to locate a Sars branch nearest to you);

3. Post/ Drop box: Complete your return in writing and post yo Sars or drop it off in a Sars drop box.



* The deadline for all taxpayers who submit their tax return manually, by posting it or droping it off in a Sars drop box; is 28 September 2012;

* The deadline for all taxpayers who submit their tax returns electronically at a Sars branch; is 23 November 2012;

* Non-provisional tax payers who submit their returns via eFiling have until 23 November 2012;

* Provisional taxpayers who submit their returns via eFiling have until 31 January 2013.

If you should require further information or seek clarification, please call either Mr. Japhta Nkwana or Mr. M Kalaluka from our office on +27(0)11 312 3149 or email us:

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Tax compliance, obstacles encountered by small and medium enterprises in South Africa – Taxation
W Abrie and E Doussy from University of South Africa conducted a meditary accountancy research in as to what are the tax compliance obstacles faced by SMEs in South Africa.

“It is internationally acknowledged that small and medium enterprises (SMEs) play a vital role in enhancing a country’s economic growth and in creating jobs. It is therefore in the public interest and in the interests of all governments to support SMEs.”
A study concentrating on the tax function in small and medium manufacturing concerns operating in the Gauteng Province in South Africa was recently undertaken. In the article (available on request), which is based on the study, the authors identify the main problem areas that manufacturing SMEs in the Gauteng Province have to cope with in administering government taxes. The article discusses the administration process only, and not the taxes themselves.
The authors have identified tax compliance requirements in South Africa as a stumbling block for SMEs. They suggest that the government seriously consider reducing the number of taxes SMEs have to administer, reduce the compliance requirements and make additional tools available to SMEs to assist them in administering taxes.
In 2009/10 fiscal year single “turnover” tax was introduced for small businesses and an attractive tax band offered to businesses which qualify as Small Business Corporations. In my opinion therefore, there has been a steady response from Government and related institutions in regard to minimizing red tape and burden of doing business by SMEs.
At iabc, we further believe that sometimes the burden and challenges faced by SMEs would be minimized via outsourcing for technical issues such as taxation, accounting and financial management to suitably qualified practitioners and consultants so then the business owners concentrate on what they do best, Business!

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Security around VAT Registrations and administration – Taxation
The South African Revenue Service has recently implemented a range of additional security measures to safeguard the VAT system from attempted abuse and fraud.

The new measures include more stringent verification of applications for VAT registration, investigations of existing VAT vendors who are under the turnover threshold and a review of risk measures for refunds. South Africa’s tax system is based on self-declaration and depends to large extent on the integrity of taxpayers to make full, accurate and honest disclosure and pay all tax that is due. The vast majority of VAT vendors are compliant and SARS thank them for making their fair contribution to the fiscus. However, monitoring of VAT registrations and refunds over the past six months by SARS has revealed a disturbing increase in attempted fraudulent registrations and other attempts to defraud the VAT system
As a result, applications must be accompanied by proof of ID, bank particulars and physical address of the business. Where applicants are unable to visit a SARS branch to apply in person or to send a legal representative, applications may be done via post but will require additional verification measures before activation. Where necessary, inspections of business premises will take place to check trading activity before activation of VAT accounts. SARS is also considering implementing additional verifications including the use of biometric tests (fingerprinting of applicants) for VAT and other tax registrations. In South Africa and internationally, the use of biometrics as a safety mechanism is growing in use and SARS is investigating this as a longer term solution.
Value-Added Tax (VAT) is a tax charged and collected by vendors on the sale of most goods or services. It is also charged on goods and some services, imported from places outside South Africa.
VAT is charged at a standard rate, which is 14%, and is paid each time a taxable supply is made. For certain goods and services, a special rate of 0% VAT (zero-rate) is applied, while a limited range of goods and services are exempt. Generally, businesses that are registered as vendors charge VAT on every sale of standard-rated goods and services (output tax) and claim credits for the VAT included in the price of their business purchases (input tax). The broad effect is that businesses are not affected by VAT and the economic cost of the VAT is actually borne by the final consumer, who cannot claim an input tax deduction. Output tax less the input tax in a particular tax period equals the amount payable/refundable to/by SARS.
Compulsory registration – If you are in business and making taxable supplies (i.e. standard-rated and zero-rated supplies), the value of these supplies is your taxable turnover. You must register for VAT within 21 days if your annual taxable turnover exceeds or is expected to exceed R1m
.Voluntary registration – If your annual taxable turnover is less than R1m but more than R20k, you can apply for voluntary registration if you can meet certain other conditions as well.
Calculating your annual turnover – Your annual taxable turnover is the gross business income (not the profit), excluding any: VAT included in your sales to your customers; Exempt supplies you make; and Sales not connected with your business in South Africa.
Commissioner may refuse to register a person for voluntary registration if any of the following requirements are not met by the applicant: The person has no fixed place of residence or business in South Africa; or Does not keep proper accounting records; or Has not opened a banking account in South Africa; or Has previously been registered as a vendor under VAT or General Sales Tax (GST) and failed to perform the duties of a vendor; or Has not met the minimum threshold requirement of R20 000 turnover for the past 12 months.
What does being registered for VAT mean? – If you are registered or required to be registered for VAT, you must – include VAT in the price of most goods and services you sell;
· keep proper VAT records and accounts;
· provide correct and accurate information to SARS;
· submit returns and payments on time;
· include VAT in your prices, advertisements and quotes;
· keep accurate accounting records for 5 years;
· produce relevant documents when required by SARS;
· notify SARS about any changes in your business, namely your address, trading name, partners, bank details and tax periods; and
· Issue tax invoices, debit and credit notes.
Adapted from VAT – Small Vendors Guide” – SARS”
(011 – 312 3149/

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Be warned, some very serious and hash SARS legislation prescribing administrative penalties for non compliance were gazette recently. These will seek to inflict serious punishment on tax payers who continuosly fail to comply.

We wish to warn all our clients and esteemed readers that this is a major business risk as the consequences may be dire and of a financial nature. In the worst case, SARS action has led to companies filing for insolvency and losing their assets and subsequently going out of business. Urgently consult your professional advisors/ Accountants as regards your level of compliance.
Note that this development merely seeks to ensure maximum possible compliance with the Income Tax Act (“ITA”), however price for non compliance would be one you do now wish to experience.
Instances of non compliance that could trigger heavy penalties:
· Failure to register as a tax payer as required by the ITA;
· Failure to submit a return and/or other documents;
· Failure to furnish Sars with required information or documents;
· Failure by a provisional tax payer to provide an estimate of taxable income as required by the ITA, and;
· Failure to inform the ‘taxman’ of a change of address.
IABC does offer full monthly Income Tax, VAT and Payroll Taxes Administration.

Mwendabai (011 – 312 3149/

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