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Fundamentals Of South african Tax > Chapter 3 - Business Entities > Flashcards

Chapter 3 - Business Entities Flashcards

1
Q

The trade shall not be considered independent

A

If it has to be performed mainly at the premises of the person from who payment is received and is subject to his/her supervision either as to the way in which the work is performed or to the number of hours that are worked

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2
Q

Supervision and control are only factors indicating employment if

A

The person is supervised or controlled mainly at the premises of the employer

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3
Q

The control as to the manner of work usually means

A

A close managing of the employee’s time

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4
Q

Where a person has three or more full time employees who are not connected to him

A

He is deemed to carry on an independent trade

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5
Q

What test is used by SARS to determine the extent to which a person is under an employer’s control?

A

The Dominant Impression test grid

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6
Q

Does the control have to come directly from the employer?

A

No , an employer can hire a consultant for the specific purpose of providing supervision or control.

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7
Q

The reference to being engaged on a full time basis in rendering the service to means

A

That the employee must spend all his/her time on that part of the business of the company of rendering the services.

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8
Q

Why is it important to distinguish between an employee and a independent contractor?

A

Because it doesn’t only affect the payer’s responsibilities to deduct employee’s tax , but the payee may also be stopped from deducting most of his operating expenses from his income if he is a common law employee

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9
Q

The various taxpayers are

A
  1. Sole traders
  2. Partnerships
  3. Companies
  4. Trusts
  5. Farmers
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10
Q

Sole trader

A

Is not a separate legal entity and is therefore not a separate taxpayer.

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11
Q

Once a sole trader’s taxable income has been determined

A

His/her tax liability is calculated using the tax table ( used for individuals) and thereafter the REBATES are deducted

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12
Q

Sole traders pay tax on their profits

A

In terms of the provisional tax collection method

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13
Q

A partnership is not a separate legal entity therefore

A

Not a separate taxpayer

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14
Q

The partnership is not assessed as a taxpayer

A

But the individual partners are

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15
Q

The partners in a partnership pay tax on the partnership profits according to

A

The provisional tax collection method

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16
Q

Companies include

A
  1. Small business corporations

2. Close corporations

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17
Q

Definition of company

A
  1. South African companies
  2. SA public entities-universities
  3. Foreign companies
  4. Co-operatives
  5. SA charities
  6. Foreign collective investment schemes
  7. A collective investment scheme
  8. Close corporations
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18
Q

A company’s year of assessment is the same as its

A

Financial year

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19
Q

Unlike individuals and trusts , a company’s year end

A

Need not end on the last day of February

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20
Q

New tax rates announced in the budget speech take affect immediately for companies with year ends falling

A

Within a period from 1 April of that year to 31 March the next year.

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21
Q

The amendments to the Act are generally only effective for year ends

A

From 1Jan to 31 December of the following year, unless provided otherwise in the Act

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22
Q

All companies which are not PUBLIC Companies

A

Will be regarded as PRIVATE COMPANIES. A CC is regarded as a Private company

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23
Q

The profits of the company are distributed to shareholders by means of a

A

Dividend

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24
Q

Specified date

A

This is the last day of the year of assessment of the company

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25
Q

Equity shares are

A
  1. Shares in a company

- excluding any share that doesn’t carry the right to participate beyond a specified amount in a distribution

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26
Q

A member’s interest in a close corporation is

A

An “equity share”

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27
Q

Preference shares issued will only be equity shared if

A
  1. They participate in profits to a unlimited extent

2. They participate in the distribution on liquidation.

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28
Q

Companies automatically classified as public companies

A
  1. PBO
  2. Co-op
  3. Insurance
  4. Any public utility company
  5. Gold and diamond mining
  6. Non resident ships and aircraft companies
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29
Q

Dividends tax is levied at a rate of

A

15% of the amount of ‘any dividend paid by any company other than a HQ company ‘

30
Q

Dividends tax is a withholding tax that is

A

Withheld by the company before paying the net amount ( dividend declared- dividends tax ) over to the shareholder

31
Q

Because the def of a company and the def of share includes a member’s interest in a CC . Any distribution of profits by a CC

A

Will be subject to dividends tax

32
Q

A SBC IS DEFINED AS

A
  1. Any CC , Co-op or private company
  2. All shareholders are Natural persons ( for the entire year of assessment)
  3. The GI does not exceed R20 mil
  4. None of the SH or Members at any time during the YOA holds any shares/any interest in the equity of any other company
33
Q

Permitted shareholding for SBC shareholders are

A
  1. A listed company
  2. Any portfolio of a collective investment scheme
  3. <5% social/consumer co-op
  4. <5% primary savings co-op
  5. Venture capital company
  6. Friendly society
  7. Any company
    - hasn’t ever owned assets >R5000
  8. Any company liquidate, windup and deregister
34
Q

Investment income of a SBC CAN NOT EXCEED

A

20% x ( revenue receipts &accrual + capital gains)

35
Q

Investment income is defined as

A
  1. Dividends, royalties, rental from immovable properties, annuities etc
  2. Proceeds derived from investment/ trading in financial instruments, marketable securities or immovable property
36
Q

Personal service is defined as

A

Any service in the field of accounting, actuarial science, architecture, auctioneering , auditing ,etc

37
Q

SBC also qualifies for

A
  1. 100% allowance- manufacturing plant and machinery
  2. Normal wear and tear allowance
  3. 50:30:20 write off (i.e. Over 3 years ) in respect of other assets
38
Q

There are 2 mayor benefits of being a SBC

A
  1. The tax rate of a SBC is considerably lower than that of a normal company.
  2. The immediate write off(100%) of all plants and machinery used in manufacturing in the year of assessment in which it is brought into use for the first time .
  3. Accelerated write off allowance (50:30:20)
39
Q

Close Corporations

A
  • body corporate
  • close corporations act
  • separate legal entity
  • 1-10 members
  • membership restricted to Natural persons and trusts
40
Q

A CC can be classed as a

A
  • SBC

- EMPLOYMENT COMPANY

41
Q

For tax purposes, a micro business

A

Is a special type of enterprise.

MB can be companies or sole traders

42
Q

Turnover tax

A

Available only to all entities that qualify as MB

43
Q

Substitute for income tax, capital gains, VAT , dividends tax

A

TURNOVER TAX FOR MB

44
Q

Why was turnover tax introduced?

A

Mainly to reduce the tax compliance burden of small businesses

45
Q

Benefit for being micro business

A

The profits are not subject to NORMAL TAX.

  • -This means that it is not necessary to record trading stock at the year end .
    • not necessary to keep records of expenses
    • taxed on receipt basis , not accruals.
46
Q

Section 48 C of the income tax act , regarding MB includes the following provisions

A
  1. If a amount is received and included in a reg MB’s taxable turnover, it can not b taxed again.
  2. If an amount accrues to a reg MB , +would’ve been included. But the. Business is no longer reg only 10% will be included
  3. When deregistered - trading stock on that date is included as opening stock at the beginning of that year of assessment, since it didn’t receive the deduction upon purchase
47
Q

Can trusts qualify as MB?

A

No they can not

48
Q

Main requirement for MB

A

The qualifying turnover for the YOA must not exceed R1 mil

49
Q

Qualifying turnover for MB is defined as

A 
1 total receipts 
2. From carrying on business activities 
3. Excl. any # of a capital nature
4. Excl. any # exempt from tax 
              - small business funding 
              - # received/ accrued from 
                 GOV grants
50
Q

If , for example a capital receipt pushes the person’s receipts over 1 million

A

It does not affect his registration as a MB

51
Q

The turnover limit for qualifying turnover is proportionately reduced

A

If the person carries on business for less than 12 mnths in the year.

This is done by taking into account the number of full months that business was NOT carried on.

52
Q

Once the entity qualified as a MB , the next step is

A

To calculate the taxable turnover

53
Q

Exclusions for taxable turnover for MB

A
  1. For NP - investment income
  2. Small business funding
  3. Government grants
  4. Amount previously subjected to the normal provisions of the income tax act
  5. Refunds
54
Q

Investment income includes

A
  1. Rental on immovable property. Rental on movable is not included.
  2. Dividends and interest
  3. Proceeds from the disposal of financial instruments
  4. Royalties, annuities and similar income
55
Q

A micro business pays tax called

A

Turnover tax on its taxable turnover.

56
Q

Other taxpayer’s tax is calculated on

A

Taxable income

57
Q

Micro businesses do not pay according to the provisional tax collection method. They are however

A

Subject to interim payments, and pay tax twice a year

58
Q

Why are trusts established?

A

As a vehicle for tax and estate planning purposes

59
Q

What a trust does with assets or profits depends on what is found in the

A

Trust deed

60
Q

The trust deed is a

A

Legal doc that is drawn up by the original donor to the trust and it contains the set of rules that governs the trust.

61
Q

Trusts have also been used to limit a taxpayer’s tax liability but for this reason

A

Certain provisions in the Act have been created to ensure that tax avoidance does not occur.

62
Q

A trust is a separate legal entity and

A

Is therefore a separate taxpayer

63
Q

The profit earned by a trust

A

Can either be held in the trust OR

be distributed to the beneficiaries of the trust.

64
Q

A trust is taxed at a flat rate of

A

41%

65
Q

The Income distributed by a trust to a beneficiary ( if the beneficiary is an individual)

A

Will be taxed as taxable income of the beneficiary using the tax tables

66
Q

Farmers

A

Special provisions relating to the calculation of taxable income and tax payable.

67
Q

Because of the importance of farming

A

Special tax provisions apply to apply

68
Q

Salaried taxpayers make provision for their annual tax liability by

A

Paying employees tax on their salary on a monthly basis

69
Q

Does employees tax differ from income tax ?

A

No , it is merely a method used by SARS to collect the tax that is due to them

70
Q

In case of employee tax who is responsible for deducting, collecting and paying over the tax

A

The employer is responsible

71
Q

Provisional tax is not another tax but rather

A

A method of collecting taxes

Fundamentals Of South african Tax (5 decks)

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