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Registered Accountants and Tax Professionals. We are a business app, accounting, tax and business consulting firm based in Stellenbosch.

Accounting System Specialists. We are a business app, accounting, tax and business consulting firm based in Stellenbosch.

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Provisional Tax Estimate - The Risk of using the Basic Amount

Provisional Tax Estimate - The Risk of using the Basic Amount

Many tax practitioners have reverted to the easy option of using the basic amount as an estimate for provisional tax. Many tax professionals are also under the incorrect impression that this is within the ambit of the income tax act to use the basic amount as an estimate.

The actual purpose of the basic amount is twofold:
1. It serves as the minimum estimate.
2. It is used as a limit to calculate underestimation penalties if the taxpayer's assessed income it below R1 million.

A brief examination of the income tax law will substantiate statements one and two above:

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Tax and small business owner remuneration

Tax and small business owner remuneration

Introduction

A question that we often receive from directors is how to compensate yourself if the company is owner managed. In other words a business where the owners are the directors and have discretion in how they are going to structure their own remuneration, or how they are going to extract the profit from the company.  Let us explore three possible scenarios.

1. Building up a loan account

We often find that the owners draw money at will and build up a loan account with the company. Some directors are under the impression that this method attracts no tax. They are wrong. 

The first factor to consider here is the interest rate that the company is charging the director. In most cases this is 0%. In normal circumstances a company would charge an interest rate to someone it lends money to. Thus in this case the 0% or lower than market related interest rate is directly attributed to the fact that the director is a connected person to the company. In other words the director is receiving a benefit due to his / her employment or connection with the company. This  equates to remuneration and as you know remuneration is taxable. 

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Business Valuations

Business Valuations

Image license: https://creativecommons.org/licenses/by/2.0/

Image title: Plan and Valuation of Pews

Business valuations are a combination between well-developed financial principles (science) and professional judgement (art). From the onset there is one principle that needs highlighting:

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A quick view on the tax consequences of the Budget 2015

A quick view on the tax consequences of the Budget 2015

Photo title: And another business day is almost over... 

License: https://creativecommons.org/licenses/by-nc-nd/2.0/

This speech of Minister Nene was highly anticipated and perhaps feared by some. 

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Who should register for provisional tax?

Business Woman

Let’s start with why provisional tax exists. It is simply a way to spread the tax amount due by the person or company over a period of time. This is to ensure that a large amount of tax is not due when the relevant assessment has been completed. Basically it is similar to Pay As You Earn (PAYE), except it is less frequent. Where PAYE is due monthly, provisional tax is due every 6 months. Straight to the point, SARS wants to ensure that they get their money while it is most likely that you still have cash.

To answer the question of who should register for provisional tax, it is any person that derives any income other than a salary. In other words any income on which PAYE is not paid. Thus if you earn a salary and for example earn rental income you should register. From the SARS website:

“Any person who receives income (or to whom income accrues) other than a salary, is a provisional taxpayer. A provisional taxpayer is defined in paragraph 1 of the Fourth Schedule of the Income Tax Act, No.58 of 1962, as any –

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Business growth and good coffee takes time

Business growth and good coffee takes time

Why do some small businesses not grow? I believe the main reason is that these small businesses wants their growth the same as their coffee. When their budget is tight they are indeed prepared to make the coffee themselves, so they make instant coffee. When funds become available they buy freshly roasted coffee from a drive through, instantly.

My point is that whether these small businesses have funds or not, they want growth to be instant. Some of these small businesses do implement measures for growth and then they quickly realise there is no instant results. So in most cases the measures fade away because no results are visible. Most real sustainable growth happens over time, similar to planting a seed today and only harvesting the crop in a future season and the crop may fail a few times along the way.

Being a coffee enthusiast myself, I can tell you that a good cup comes at a cost. I prefer to buy my beans from the roaster or a retail outlet that is directly affiliated with a local roaster, meaning they get freshly roasted coffee at least weekly. I do not buy the beans that are on the shelves on most supermarkets as they are in most cases guaranteed to be stale after a month from roasting date. Further I do not buy ground coffee as with that the freshness along with the taste is basically lost 3 minutes after grinding it. I buy beans and grind it myself, preferably with a hand manual grinder. An electric grinder is fine if it is a decent burr grinder, but the decent ones are usually the industrial ones and are rather expensive for the home user. You have the electric blade grinder as a cheap alternative but it gives you an inconsistent grind (coffee particles vary in size) and the heat of the rotating blades damages the coffee's taste. There is a reason to this madness, if done correctly you will get the most amazing and authentic coffee taste. Coffee should never be bitter. And you should never kill coffee with sugar! The reason people drink sugar in their coffee is exactly because it is prepared incorrectly and then tastes bitter.

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