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When is an entity considered to be a small business corporation for income tax purposes?

According to Article 12E(4) of the Income Tax Act, a small business corporation (SBC) is defined as a close corporation, co-operative or private company (in terms of the Companies Act of South Africa):

  • whose total shareholding is held by shareholders or members who are natural persons for the full year of assessment;
  • whose gross income for the year of assessment (12 months) does not exceed R20 million;
  • of which no shareholders or members at any time during the year of assessment (of the company or CC) held any shares or interest in the equity of any other company/corporation except:
    a. a listed company;
    b. any portfolio in a collective investment scheme;
    c. any company contemplated in section 10(1)(e)(i)(aa), (bb) or (cc) (sectional title legal entities, equity block companies and associations formed to manage joint interests of members);
    d. a company, CC or co-operative if the company, CC or co-operative:
    – did not practice during any year of assessment; and
    – did not own any assets > R5 000 in market value during the year of assessment
    e. < 5% in social or user co-operative if income is obtained from members only;
    f. < 5% in “primary savings co-operative bank” or “primary savings and loans co-operative bank”;
    g. a venture capital company;
    h. a mutual assistance association;
  • of which not > 20% of total receipts and accruals (except capital of nature) and all capital gains of the company/CC consist of investment income and income derived from the provision of a personal service; and
  • which is not a personal service company (definition of personal service company: personal service (one of the defined occupations) rendered by related party AND has fewer than three full-time unrelated employees who are fully engaged in providing service).

If the entity complies with the above-mentioned requirements, it is considered a small business corporation and the following sliding scale will apply for tax purposes:

Taxable income (R) Tax rate (R)
0 – 75 750 0%
75 751 – 365 000 7% of taxable income above 75 750
365 001 – 550 000 20 248 + 21% of taxable income above 365 000
550 001 + 59 098 + 28% of taxable income above 550 000

SBC Tax Rate for the period 1 April 2017 to 31 March 2018

An SBC is also entitled to accelerated wear and tear depreciation allowance deductions.

If you are unsure whether you qualify as a SBC, please contact Adrian de Geus (adrian@asl.co.za) or your relationship director.