Tag Archives: tax planning

TAX SAVINGS WITHOUT LOOPHOLES!

“Loopholes” are gaps in tax legislation, which are used by tax practitioners, to circumvent tax laws, therefore making it easy to reduce tax. Beware; loopholes are a tightrope between tax avoidance (legal) and tax evasion (illegal) method of reducing taxes.

 

Over the last ten years or so, The South African Revenue Service (SARS) has clamped down on loopholes, thus making it next to impossible to use them. Rigid taxation laws can lead to greater risk, as far as the taxpayer is concerned. In short, the risk of using a particular loophole outweighs the benefits to be derived.

 

The question is, how does a taxpayer (company or individual), save taxes? Of course the answer is not easy. And every tax practitioner might have a different answer to this question.

 

Our advice is twofold.

 

  1. Proper tax planning/administration
  2. Vigilance

 

 

Proper tax planning;

Start with the basics, and maintain proper records for all financial/business transactions. As a small business or cash strapped individual, you might lack the resources for a tax department/ tax practitioner. So do it yourself, by recording transactions and filing and storing your own documents.

 

From these records you can determine the following;

  • Does the business qualify as a Small Business Corporation, taxable at a lower rate?
  • Were any new machinery purchased, which qualifies for legal tax deductions.
  • Can you claim wear and tear rates on all assets purchased?
  • Revalue assets never recorded on the books, and claim the appropriate wear and tear.
  • Reclassify as many assets used for business purposes and claim wear and tear allowances.
  • Do you need staff? Rather opt for a Learnership, and claim the appropriate deduction from your taxes.
  • Finance charges on HP arrangements, or lease payments should be checked, and considered for tax deductions.Read on Section 11(a) to (g) of the Income Tax Act, and you will notice that any expense in production of income is tax deductible. It might be that these expenses were not included on your expense accounts, but could legitimately been used in the production of income.
  • Pay provisional taxes on time, to avoid unnecessary interest and penalties, as well as benefiting from possible refunds from SARS.Vigilance

     

    It is surprising how taxpayers pay more tax, by overlooking simple errors on their tax assessments, as well as not staying up to date with pronouncements, such as the Budget speech and interim reports from SARS.

     

  • Review your tax assessments for mistakes. Who said SARS is perfect? They make substantial mistakes on assessments.
  • Compare tax assessments received, to a provisional calculation prepared prior to submitting a return.Here follows examples of common mistakes made by SARS on Assessments: 
  • The rebate has not been credited to the tax assessments.
  • A tax loss reflects as a taxable profit.
  • PAYE and SITE has not been credited to the tax assessments.
  • Provisional Tax paid, has not been credited to the tax assessments.
  • Income has mistakenly been included into the assessment, which the taxpayer has no proof for.
  • Interest and penalties have been raised, whereas the tax have been submitted and paid on time.
  • Tax deductions claimed have been overlooked.The list goes on. Contributing to the problems is a lack of skills at the South African Revenue Service. The taxpayer should either acquaint him/herself with tax procedures (Via SARS website and e-filing), or procure the services of a tax expert. It will have to be one of the two, other than that big trouble will inevitably be faced.Be aware that you can object or appeal against wrong taxes, and request that your tax affairs be reviewed.

     

    Through proper tax planning and vigilance, you can save yourself the risk of court action, and substantial costs, and taxes! The best way out is preparing/budgeting for taxes, and then paying, what is only due, nothing more!

    Let SARS pay for consultation, Not YOU! Were you overtaxed, but your cash flow is low?Solution:  Service at No COST to You. We negotiate a % of Tax refund!Email: info@sgafc.co.za

     

    Sean Goss

    www.sgafc.co.za

    email: info@sgafc.co.za

     

Tax Planning for the Small Builder or Contractor

The failure to plan for tax prior to a business being formed leads to inevitable tax problems that could so easily have been avoided, have the contractor considered reading widely.

 

The legal structure for the building business is crucial. Many builders (and other types of businesses) are oblivious of the impact taxes have on the type of legal entity considered. There are three popular types of legal entities. I.e., the close corporation, the PTY (Ltd), or the sole proprietor. More on how taxes affect these entities later.

 

a)      Compulsory Taxes and registrations.

 

On establishment of the business, there are some compulsory taxes and statutory matters the business will have to register for.

 

 

  • If a CC, Income Tax. Or the Income tax number of the individual(s), for a sole 

      proprietorship or partnership.

 

  • Value added tax (VAT), but only if the business generates more than R1million per month turnover (R84 000) per month. Or voluntary registration if a minimum of R50 000 per annum can be proven.

 

  • Whether the business employs people or not, Pay-as-You-Earn (PAYE), tax remains compulsory. So if you the sole owner/director, you remain liable for tax.

 

  • The PAYE returns are submitted monthly, and VAT bi-monthly.

 

  • Register any employees at Department of Labour for Unemployment Insurance.

 

  • And importantly for the building industry, Registration for Occupational injuries (WCA), also remain important.

 

The tax rate for companies is currently 28% of profits. But SME Contractors can qualify as Small Business Corporations, which entitles them to a reduced rate of 15%!

 

 

b)      Legal Tax savings

  How to maximize taxes.

 

  • Building contractors can use capital allowance on the equipment that they own.

Example:

Company A generated a profit of R40 000, and did not use allowances, so it was compelled to pay (R40 000 X 15%)=R6000.00 tax.

Company B, also generated a profit of R40 000, but valued all their assets/tools and arrived at a value of R80 000. The allowance wear and tear is about 25%. Plus they took advantage of s12B allowances, which entitles them to a 50%, write off on equipment. Calculation (R80 000X25%) =R20 000+(R80 000X50%)=R40 000, Total R60 000.

 

All taxable profits (R40 000-R60 000), were wiped out, and the business owes zero tax!

 

 

  • Vat input on all equipment purchased once off, is also claimable.

 

 

If you cannot be guaranteed regular income, it would be advisable to remain a sole proprietor. There are advantages to this. A company will be taxed separately from its owners. So even if the company benefits from tax savings the owners still have to pay tax. If you a sole proprietor however, you can benefit from tax savings in your business, since these savings will be off set against your personal income.

 

 

a)      Tax Clearance and compliance certificates.

 

It is important for contractors that consider doing business with the state, to have a tax clearance. A tax clearance is obtained from SARS, and basically states that your business taxes are up to date.

 

For workers employed by your business, a certificate from the Department of Labour for Occupational Injuries, also have to be obtained.

 

In Some cases, businesses also have to be registered at the Building Council.

 

 

b)      Conclusion

       To comply with all of the above, a proper administration should be in place. Or 

        the contractor should opt for a skilled accountant or tax practitioner!

 

 

Sean Goss

Tax Advisor

www.sgafc.co.za

 

 

 

TAX AUDITS AND TAX COURTS

 Let SARS pay for consultation, Not YOU! Were you overtaxed, but your cash flow is low?Solution:  Service at No COST to You. We negotiate a % of Tax refund!Email: info@sgafc.co.za

The South African Revenue Services will conduct audits on your tax affairs, with or without your knowledge.

Types of Audits:

  1. Desk top Audit

SARS will compare all information they can access about you and/or your company, with Vat returns submitted, PAYE etc, and raise assessments for any discrepancies.

      

  1. Physical audit

You will be notified in a letter, delivered at your place of business, that an audit will be conducted on your affairs.

 

 

This then begs the question, are we compelled to co-operate with SARS, and furnish all the information?

 

The answer is not straight forward, but I normally instruct client not to panic, and succumb to the pressure. Ask for an engagement letter from the SARS official concerned. Contact your tax practitioner or attorney before co-operating.

 

Bear in mind, that SARS is mindful of their mistakes, and will treat the matter with care. You are however not obliged to cooperate if the officials are rude and intimidating. Do not also incriminate yourself. Remain silent (remember that right)

 

Whilst the officials will claim that you are audited in terms of the Income Tax Act of 1962, they might be in violation of the Constitution or the Criminal Procedure Act, if inference of a crime is made.

 

If SARS are in violation of the Constitution, the audit cannot proceed!

 

 

Summoned to Tax Court

 

A summons is only valid, if its delivered by hand, to the business/person concerned. It looses it relevance if the above procedure is not followed.

The tax courts, due to simple mistakes, issue many summonses. I.e.

Returns and assessments could have been paid, but not recorded by SARS. Scrutinize bank statements carefully, find receipts and proof, and furnish the documentation.

Again, it’s important, not to panic.

For more serious cases, you can use your right as a taxpayer, to request that your affairs are re-examined.

If you have applied for tax amnesty, make sure you are not subjected to enforcement action, when Tax amnesty has been applied for.

In many instances, the cases can be settled with the prosecutor, and never really reach court, save for criminal cases like fraud or money laundering.

 

Author: Sean Goss  sgafc@mweb.co.za