Sole proprietor tax


Sole proprietor tax is an issue which raises its head when you personally run a business with a trade name and not through a company or corporation.

So, as a sole proprietor, you are Joe Black t/a Better Photo Agency, for example. That is, your business is Better Photo Agency and you are the only owner. A CC or a company does not feature in this set-up. Your letterhead typically has “Better Photo Agency” in big at the top and “Sole proprietor: J Black” in small at the bottom. No registration number is displayed, even if “Better Photo Agency” has been registered as a defensive name.

If you as an individual are registered for tax with SARS, then there is no need to register your sole proprietor business for tax as it is not a separate legal entity and cannot be registered for tax as such. You are the business and the business is you, as it were, and your business trading figures are reported to SARS as your own personal figures.

If you do not have a personal tax number then you will need to apply for one and that number is used when reporting your personal and business income.

What happens if I die without a will?

An obvious starting point in our first of a new series of Trusts and Estates Alerts, is to consider the importance of having a well-constructed, valid Will.    

If you, at the time of your death, have no Will, or your Will is invalid or does not deal with your entire estate, you are said to have died intestate. It is estimated that more than 50% of South Africans die intestate every year

Despite the horror stories, if you die without a Will, your assets are not forfeited to the state, however the distribution thereof is regulated by statute as opposed to your own directions, as you would have set out in your Will.

The relevant Act that regulates the devolution of your assets should you die without a Will is known as the Intestate Succession Act, 81 of 1987.

The Act sets out a fixed formula that is applied to determine who inherits your estate and in what proportion.

The Act is based on – excluding benefits to a spouse – a system of passing benefits to the blood family of the deceased. The general principle being that those family members closest to the deceased in terms of the bloodline, stand to inherit first.

So for example, if the deceased is married, but does not have children, the spouse will inherit the entire estate. 

If however the deceased does not have a spouse at the time of his death, but has children, the children will inherit the entire estate in equal share.

via What happens if I die without a will? – Lexology

Make sure all your registrations are up to date before you die: Register

Donations Tax and CGT

Accordingly, if the taxpayer renounced a right for the benefit of a third party for no consideration, it will be difficult for the taxpayer to discharge the onus that he did not have an intention of generosity or liberality. As a result the taxpayer will in all likelihood be liable for donations tax which is levied at 20%. It should, however, be noted that if the taxpayer does not settle the donations tax liability, the South African Revenue Service, can hold the done personally liable and recover the outstanding donations tax from such a person.  

CGT implications

In addition to the abovementioned donations tax implications, the taxpayer needs to establish whether the transaction has any CGT implications.

In terms of the Eighth Schedule to the Act, a “capital gain” arises when the proceeds received on the disposal of an asset is greater than the base cost of the asset.

The meaning of an asset for purposes of the Eighth Schedule to the Act is defined widely and includes “property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency but including any coin made mainly from gold or platinum as well as a right or interest of whatever nature to or in such property”. The meaning of a disposal on the other hand specifically provides for the inclusion of the waiver or the renunciation of a right. The renunciation of the right by the taxpayer would constitute a disposal of a capital asset and the taxpayer will be liable for CGT on the difference between the proceeds received, and the base cost of the right. If the taxpayer waived the right for no consideration, the proceeds would be nil.

However, in terms of paragraph 38(1)(a) of the Eighth Schedule, where a person disposes of an asset by means of a donation, or for a consideration not measurable in money, or to a connected person for a consideration which does not reflect an arm’s length price, the proceeds will be deemed to be the market value of the asset on the date of the disposal.

If an asset is disposed of by means of a donation, such disposal is deemed to have taken place at market value for CGT purposes and the taxpayer will be liable for CGT on the difference between the market value of the right and the base cost thereof.

Accordingly, unless careful consideration is given to the construction of a transaction, the good intentions of a taxpayer can have adverse tax consequences. It should, however, be noted that none of the tax implications set out above will be applicable if the taxpayer makes a donation to an approved Public Benefit Organisation.

via Good intentions gone bad – Lexology

Tax-free transfer of residential property

If you own residential immovable property through a trust, company or close corporation CC you should really think about transferring the property into your own name.    Until 31 December 2012, a trust, company or CC can transfer residential property tax-free to beneficiaries or members if they meet certain conditions. These conditions are set out in paragraph 51A of the Eighth Schedule to the Income Tax Act, 1962.

One condition is that the property must be transferred to a person who ordinarily resided in the property for a certain period. But on 2 June 2011, the National Treasury announced that it intends changing the law to scrap this condition. The only requirement in this regard would be that the member or beneficiary had to use the property for domestic purposes.

The effect of the proposed change will be that companies, CCs and trusts may be able to transfer second homes and holiday homes to their members or beneficiaries tax-free.It is very important that you get solid tax advice if you are thinking about transferring residential property from your company, CC or trust. For instance, if the conditions referred to above are met, the entity should not suffer transfer duty or capital gains tax when it transfers the property. But the entity may still suffer donations tax.

via Tax-free transfer of residential property – Lexology

SARS employees might abuse their position

COLIN WOLFSOHN: Look, their whole principle of separating and making our ordinary Tax Act simpler, without these administrative provisions, is very good, no question about it. We understand where SARS is coming from in terms of cases of genuine crooks or people, as we say, like an Enron kind of case. We are concerned on a practical basis though, whether all these provisions…because this Act is written in the basis where everything is perfect and we’ve seen, unfortunately, cases in the past where you might have SARS employees who don’t interpret these legislations pieces totally accurately and, if I can use the wrong wording, might abuse their position. That kind of situation concerns us but hopefully with proper training of SARS officials that things will improve. 

via What the new Tax Administration Bill covers – Tax | Moneyweb

We have had instances where SARS employees have abused their position and unfairly interpreted the VAT Act to the total and unnecessary disadvantage of the taxpayer. Arrogant and unprofessional behaviour like that should never have been allowed to take place. It echoes the harshness and intolerance of Apartheid racism.

Funders welcome proposed tax incentive for angel investors

However, the draft law proposes to open the incentive so that all taxpaying entities can benefit from deductions, and to remove the R750000-a-year threshold for deductions. It also proposes to lift the turnover threshold of those small businesses that can qualify for investments from a venture capital company from R10m to R20m, and from R100m to R300m for a junior mining company. It also proposes to allow investors to take controlling stakes in the qualifying venture capital fund they invest in.

via BusinessDay – Funders welcome proposed tax incentive for angel investors

Tax filing season opens 1 July 2011

The South African Revenue Service (SARS) has announced that tax return filing season for individuals will start on Friday, July 1, and will run until Friday, November 25, for taxpayers who use eFiling.

via Tax filing season opens –

For assistance with your taxes, contact Accountkeeper