As we cannot register new Close Corporations (CC), we only refer to existing CC’s, and they need to have been registered for Income Tax.
Trusts are not automatically registered and need a specific registration process, despite being obliged to register.
Income tax is thus a legal requirement for any formal entity.
The annual income tax return is normally due around 6 months’ after yearend and is submitted after the annual financial statements for the entity is finalised.
Remember that an entity’s yearend is discretionary but as our personal tax yearend is 28 February annually, most entities prefer 28 Feb as their yearend.
However, the annual income tax is not the only tax returns for entities – provisional taxes are also due twice a year.
Once the income tax return is submitted and an assessment is issued by SARS, any provisional taxes paid during the 1st & 2nd provisional tax submission, are then deducted from the assessment and the balance is due to/by SARS.
This is not an additional tax but only income tax that are submitted more frequently based on preliminary financial results.
Most entities will submit 2 provisional tax returns, however, a 3rd is also possible.
Provisional tax is submitted with the tax form knows as IRP6.
The 1st provisional tax return is due on the last working day of the end of month 6 of the entity’s yearend.
The 2nd provisional tax return is due on the last working day at yearend.
Remember that SARS is very strict on deadlines, 2 am on the following day will constitute a late submission, subject to a 10% penalty.
Should you be tempted to postpone the payment of provisional taxes to rather pay with the annual tax return, be warned as SARS issues additional penalties of 20%+ for underestimation of provisional tax.
Small business owners often make a mistake to treat an entity’s profits as personal money and should be careful not to claim the right of use to it.
Entity profits can only be transferred to business owners as salaries or dividends or loans, and each of these is subject to taxes at different rates.
Whilst tax evasion is illegal and unethical, and there is nothing wrong with tax effectiveness. We normally discuss entity profits with directors/members to find the best way to treat them.
At Munrofin, we encourage tax discipline and do not entertain any form of unethical tax treatments.
We are Tax Practitioners and proudly South African, and we believe small business and entrepreneurs have a big and important role to play.
Transparency is part of our foundation therefore copies of all SARS correspondence are provided for your peace of mind.
A Micro Business is classified as a company with a gross income* not exceeding R1 million.
A Small Business is classified as a company with a gross income* not exceeding R14 million.
A Medium to large business with a gross income* exceeding