The new micro business turnover tax was introduced on 1 March 2009. SARS has now made the micro business registration forms available on its website (go to www.sars.gov.za).
This article outlines how the new tax system will operate. In essence, the turnover tax taxes the turnover of a micro business, rather than its taxable income. The main benefit of electing to be registered as a micro business is the potential saving in compliance costs, as a micro business will not submit VAT returns and its annual tax return should be a simpler document, requiring essentially only the declaration of the business’s taxable turnover for that year. A micro business that is an employer must still comply with the employees’ tax, SDL and UIF obligations, so there will be no saving in compliance costs in that area.
Businesses eligible to register as a micro business
The types of entities that qualify are:
- Sole traders (including the deceased or insolvent estate of a natural person that was a registered micro business at the time of death or insolvency)
- Co-operatives, companies and close corporations.
The following persons are however, specifically disqualified from registering as micro businesses:
(a) A person that at any time during the year of assessment holds any shares or has any interest in the equity of a company other than the following permitted investments:
- Shares in South African listed companies
- An interest in a collective investment scheme
- A share in a body corporate or share block company as described in s 10(1)(e) of the Income Tax Act
- A share in a venture capital company as defined in s 12J of the Income Tax Act
- Less than 5% interest in a social or consumer co-operative or a co-operative burial society
- Less than 5% interest in a primary savings co-operative bank or a primary savings and loans co-operative bank
- An interest in a friendly society.
(b) A person whose investment income comprises more than 10% of his total receipts during a year of assessment. ‘Investment income’ for this purpose includes income in the form of dividends, royalties, rental from immovable property, annuities, interest and proceeds derived from investment or trading in financial instruments (including futures and options), marketable securities or immovable property.
(c) A person who, at any time during a year of assessment, is a ‘personal service provider’ or a ‘labour broker’, as defined in the Fourth Schedule to the Income Tax Act, without an IRP30 exemption certificate.
(d) A person rendering a ‘professional service’ during the year of assessment. ‘Professional service’ means a service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, broking, commercial arts, consulting, draftsmanship, education, engineering, entertainment, health, information technology, journalism, law, management, performing arts, real estate, research, secretarial services, sport, surveying, translation, valuation or veterinary science.
(e) A person receiving proceeds from the disposal of:
- immovable property, to the extent that it was used for business purposes; and
- any other asset of a capital nature used mainly for business purposes, in excess of R1,5 million over a period of three years comprising the current year of assessment and the immediately preceding two years of assessment, or such shorter period during which that person was a registered micro business.
(f) A company:
- with a year of assessment ending on a date other than the last day of February;
- any of whose shareholder/s, at any time during its year of assessment, is a person other than a natural person or the deceased or insolvent estate of a natural person;
- any of whose shareholders, at any time during its year of assessment, holds any shares or has any interest in the equity of any other company other than permitted investments (see above);
- that is a public benefit organisation approved by SARS in terms of s 30 of the Income Tax Act; or
- that is a recreational club approved by SARS in terms of s 30A of the Income Tax Act.
(g) A partner in a partnership during a year of assessment if:
- any of the partners in that partnership is not a natural person;
- that person is a partner in more than one partnership at any time during that year of assessment; or
- the qualifying turnover of that partnership as a whole for that year of assessment exceeds R1 million.
The key requirement for a qualifying business is that its annual qualifying turnover must not exceed R1 million for the year of assessment. Qualifying turnover means the total receipts from carrying on business activities, excluding any capital receipts and government subsidies that are exempt from normal tax in terms of ss 10(1)(y), 10(1)(zA), 10(1) (zG), and 10(1)(zH) of the Income Tax Act.
An anti-avoidance rule guards against income-splitting where a micro business is broken up into smaller business components or sub-components to ensure that each business component remains within the R1 million threshold. In such instances, the turnover of connected persons’ business activities will be added together for purposes of determining the R1 million threshold.
Calculating the turnover tax
The starting point for calculating the turnover tax is to
determine the business’s taxable turnover for the year, which is determined as:
- Cash receipts from carrying on business activities in the Republic during a year of assessment, excluding receipts of a capital nature:
(a) 50% of all receipts of a capital nature from the disposal of:
- immovable property, to the extent that it was used for business purposes;
- any other asset used mainly for business purposes;
(b) in the case of a company, investment income (see above) (other than dividends); and
(c) allowances claimed in the preceding year of assessment (prior to the business registering as a micro business) that are required to be included in the income of a taxpayer in the following year of assessment, such as the doubtful debts (s 11(j)) and the allowance for future expenditure (s 24C), to the extent that those allowances exceed the balance of any assessed loss that the micro business is prevented from carrying forward in terms of section 20 of this Act;
(d) investment income of a natural person;
(e) government subsidies (see above);
(f) any amount received by the micro business that accrued to it prior to its registration as a micro business and was previously subject to income tax.
The tax on the taxable turnover is determined with reference to the tax tables available at: http://www.sars.gov.za/home.asp?pid=43122.
Professor Jackie Arendse is the Chairperson of the SAIT National Technical Committee, Jackie@eagletax.co.za