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Small businesses in South Africa may qualify for special taxation treatment. Most notably small businesses that qualify as either a Micro Businesses or a Small Business Corporation. Before looking at the qualifying criteria and benefits for these two special types of small businesses for tax purposes lets look at the tax threshold for individuals for the 2018 financial year. Tax Threshold = the amount of income one can earn in a financial year before paying income tax.
2018 Tax threshold
For people below the age of 65 the tax threshold is R75,750. This means that a typical husband and wife team who operate a small business from home will only start to pay income tax once their joint net taxable income exceeds R150,000 per annum or R12,500 per month. This means that a lot of people starting small businesses and doing their best to survive will not be liable for income tax untill they reach this tax threshold. This however still requires that proper accounting records are kept. (This is assuming that the husband and wife contribute equally to the business and that their income is not purely split to avoid paying income tax.)
In a lot of small businesses one will often find that other family memebrs who live in the same household also work in the same business. These family members should all receive salaries for income tax purposes provided that the salaries are not only paid to avoid tax.
Turnover tax
Micro Businesses are businesses which have a turnover of less than R1million rand per annum which may qualify to register for Turnover tax which replaces Income tax and requires much less administration . One of the provisions to register for turnover tax is that Investment income does not exceed twenty percent of the income of the organisation.
Small Business Corporations
Small Business Corporations are taxed at a lower rate initially and have the benefit of having Section 11 (e) (Special Wear and Tear Deductions) deductions in that they may write off assets fully for tax purposes in the year that the assets were brought into production. To qualify, which qualificatiojn is determined annually, all the shareholders or members must be natural persons with no shares or member's interest in any other Pty (Ltd) or Close Corporation and the organisations turnover should not exceeed R20 million per annum.
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