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We believe there is a better way. We are an accounting, tax and business consulting firm based in Stellenbosch.

We believe there is a better way. We are an 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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Hello,Isn't this technically wrong? While SARS definitely does not want you to just be basing your first provisional estimate on t... Read More
Sunday, 26 August 2018 19:17
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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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Hi Chris You are basing this salary on the amount at which the effective tax rate breaks through the 42% rate. But over R1,5 milli... Read More
Friday, 09 March 2018 10:46
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Business Valuations

Business Valuations

We will address the following two questions we ended part 1 with: 

1. The influence of our fair rate of return/discount rate ( 15% in example ) has on the valuation, or how we determine the correct rate.

2. How long we assume the company will exist (three years in the example).

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How the new Tax Compliance Status (TCS) (the replacement of Tax Clearance Certificates (TCC)) works.

How the new Tax Compliance Status (TCS) (the replacement of Tax Clearance Certificates (TCC)) works.

This article will first explain the rational for the new system, then the difference with the previous system and finally on a practical note provide you with steps to obtain your tax compliance status on e-filing.

The new Tax Compliance Status system will be managed online via e-filing.

SARS has decided on the new Tax Compliance system for the following reasons:

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Tax deductions for Pension, Retirement and Provident funds simplified

Tax deductions for Pension, Retirement and Provident funds simplified

All contributions to pension, retirement annuity and provident funds can be deducted from the individual's taxable income. The deduction is capped at a rate of 27.5% of the greater of remuneration and taxable income. In other words, if say your total pension fund contributions for the year was R100 000, your taxable income was R200 000, and your remuneration was R300 000, then your deductions would have been limited to 27.5% of R300 000 (since R300 000 is greater than R200 000). Thus your deductions would have been limited to R82 500.

From our example above you would notice that R17 500 (R100 000 - R82 500) were not allowed for a deduction in the relevant tax year. However, the deductions that were not allowed is carried over to the following tax year and deemed as contributions for that tax year. In other words say for the next tax year your pension contributions were R100 000, your taxable income R300 000 and your remuneration R400 000. Thus your allowed deduction would be R400 000 x 27.5% = R110 000. You only contributed R100 000, but now you can also deduct R10 000 of the R17 500 from the previous year, thus a total deduction of R110 000. The remaining R7 500 is now carried over to the following tax year.

Some technical points:

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There seems to be a lot of confusion even amongst tax accountants. Can you include the taxable portion of your capital gains in yo... Read More
Friday, 10 February 2017 22:40
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