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Tax > Turnover Tax > Flashcards

Turnover Tax Flashcards

1
Q

Company A may elect to register as micro business, what happens?

A

Calculate ‘Taxable turnover’ (cash receipts) taxed per table
Expenses and allowances not deductible

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2
Q

What Does Company A’s Qualifying turnover have to be to qualify as micro business

A

‘Qualifying turnover ‘ does not exceed R1 000 000

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3
Q

should the individual (MR A) register his business as a micro business: Investment income (rent, interest etc)

A

Subject to normal income tax provisions

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4
Q

should the individual (MR A) register his business as a micro business: Salary received by Mr A (Remuneration)

A

Subject to normal income tax provisions i.e.:
•Normal tax
•Employees tax

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5
Q

Does the individual (MR A) qualify for his sole proprietor business as a micro business if his turnover is 800 000:

A

Micro business: (‘Qualifying turnover’ from sole proprietor business: R800 000

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6
Q

should the individual (MR A) register his sole proprietor business as a micro business:
how is he taxed?

A

-Calculate ‘taxable turnover’ (cash receipts) taxed per table
Expenses and allowances not deductible

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7
Q

should the individual (MR A) register his business as a micro business: Capital gains

A

Capital gains on disposal of non-business asset and asset not mainly used for business Subject to normal CGT provisions

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8
Q

Requirements for Turnover tax: Turnover

A

‘Qualifying turnover’ does not exceed R1million (apportioned R1 million if less than a year)

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9
Q

Requirements for Turnover tax: business type

A

Company; or
Close corporation; or
Individual (i.e. natural person trades as sole proprietor or partnership)?

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10
Q

Turnover tax available to

A

Micro businesses with a ‘qualifying turnover’ not exceeding R1 000 000
Companies (including close corporation, body corporates, co-operatives)
Natural person (who trades as sole proprietors or partnership)
(not available to trusts)
Elective – a taxpayer may elect the application of Turnover Tax

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11
Q

How Turnover tax taxed?

A

Tax on Turnover (total receipts, accruals are excluded)

not on its profit or net income

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12
Q

Turnover tax effectively replaces

A

Normal Tax, Capital Gains Tax, Dividends tax (partially)

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13
Q

S 10(1)(zJ) Exemption

A

A taxpayer is not subject to both Turnover tax and Normal Tax in respect of the same receipt (no double tax)
Thus, S 10(1)(zJ) = exemption micro business from Normal Tax

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14
Q

Will you be taxed on normal tax and turnover tax?

A

No.
A taxpayer is not subject to both Turnover tax and Normal Tax in respect of the same receipt (no double tax)
Thus, S 10(1)(zJ) = exemption micro business from Normal Tax

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15
Q

S 10(1)(zK)

A

Funding received by micro sized enterprise from small business funding entity is exempt in terms of s 10(1)(zK).

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16
Q

Par 57A of Eight Schedule

A

The capital gain or loss from the disposal of capital assets used mainly for business purposes by a registered micro business is disregarded for CGT purposes.

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17
Q

How will turnover tax, tax capital gains?

A

Turnover Tax specifically includes a portion (i.e. 50%) of the capital receipts (i.e. not the capital gain) in the ‘taxable turnover’ of the taxpayer.

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18
Q

Turnover tax, Dividend tax exemption?

A

Partial exemption from Dividends Tax - to the extent that the total dividend paid (not a dividend in specie) paid by the micro business does not exceed R200 000 for a specific year of assessment.
Total dividend paid = cumulative dividends paid = greater than R200 000 = normal dividends tax provisions apply to such a dividend (i.e. subject to dividend withholding tax provisions).

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19
Q

Micro Business paid 100 000 worth of Dividend

A

exemption from Dividends Tax

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20
Q

Micro Business paid 300 000 worth of Dividend

A

normal dividends tax provisions apply to such a dividend (i.e. subject to dividend withholding tax provisions).

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21
Q

‘Qualifying turnover’ definition

par 1

A

Total receipts from carrying on business activities, excluding any –
Amount of a capital nature; and
Government subsidies (exempt from normal tax in terms of ss 10(1)(y), 10(1)(zA); 10(1)(zG) and 10(1)(zH).

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22
Q

Persons that do not qualify as a micro business (Par 3)

A

Anyone holds any shares or has any interest in the equity of another company other than permitted investments (para 4). (Refer to Silke pg 794 and 795 in this regard)
More than 20% of total receipts consists of:
Natural person – income from rendering a personal service
Company – investment income and income from rendering a personal service
(Refer to Silke pg 795)
‘Personal service provider’ or ‘labour broker’ without an exemption certificate
Total amounts received from the disposal of
(i) immovable property, mainly used for business purposes; and
(ii) any other asset of a capital nature used mainly for business purposes (excl financial instrument)
exceed R1,5m over a period of 3 years or such shorter period during which that person was a registered micro business
3 years = current and 2 preceding years of assessments

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23
Q

micro business requirements: holding of investments

A

do not qualify as a micro business (Par 3):Anyone holds any shares or has any interest in the equity of another company other than permitted investments (para 4). (Refer to Silke pg 794 and 795 in this regard)

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24
Q

micro business requirements: total receipts of natural person

A

do not qualify as a micro business (Par 3):
More than 20% of total receipts consists of:
Natural person – income from rendering a personal service

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25
Q

micro business requirements: total receipts of company

A

do not qualify as a micro business (Par 3):
More than 20% of total receipts consists of:
Company – investment income and income from rendering a personal service
(Refer to Silke pg 795)

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26
Q

micro business cannot also be (type of co.)

A

‘Personal service provider’ or ‘labour broker’ without an exemption certificate

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27
Q

micro business requirements:

Total amounts received from disposal

A

do not qualify as a micro business (Par 3):
Total amounts received from the disposal of
(i) immovable property, mainly used for business purposes; and
(ii) any other asset of a capital nature used mainly for business purposes (excl financial instrument)
exceed R1,5m over a period of 3 years or such shorter period during which that person was a registered micro business
3 years = current and 2 preceding years of assessments

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28
Q

micro business requirements: company

  • YOA
  • SH’s type
  • SH’s ownership
  • other
A

do not qualify as a micro business (Par 3):
a company
With a year end other than the last day of February
at any time during its year of assessment, any of its shareholders is a person other than a natural person (or the deceased or insolvent estate of a natural person)
at any time during its year of assessment, any of its shareholders holds any shares or has any interest in the equity of any other company (other than permitted) investments
 PBO
approved recreational club

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29
Q

micro business requirements: a partner in a partnership

A

do not qualify as a micro business (Par 3):
a partner in a partnership if – (refer Silke page 796)
any of the partners is not a natural person
a partner in more than one partnership
partnership turnover exceeds R1 000 000

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30
Q

Connected persons

par 13

A

Anti-avoidance legislation
Prevent income splitting by a micro business i.e. the micro business is split between connected persons to ensure that R1 million turnover tax threshold is not exceeded

31
Q

Voluntary registration

(par 8) of MB

A

Registration as a micro business is voluntary
Not obliged to register even if the person’s ‘qualifying turnover’ does not exceed R1 000 000 and meets the definition of a micro business.
Voluntary registration applies with effect form the beginning of the year of assessment.

32
Q

When must MB register if Commenced business activities during year of assessment

A

The micro business needs to register within 2 months from the date of commencement of business activities.

33
Q

When must MB register if Commenced business activities prior to the current year of assessment

A

The micro business need to register before the beginning of the year of assessment for which registration as a micro business is required (unless Commissioner prescribe a later date).

34
Q

YOA for micro business

A

Always from 1 March to 28/29 February of the next year

35
Q

Source of TT

A

Taxable turnover = only receipts from ‘carrying on business activities in the RSA’

36
Q

‘Taxable turnover’ calculation for natural persons:

A 
General inclusion
(par 5)
\+Special inclusions (par 6)
(not including investment income)
-Special exclusions
(+Investment income (par 7(a)))
(par 5 & par 7)
EQUAL =‘Taxable turnover’ of natural person
37
Q

General inclusion of TT Calc

A

Receipts from carrying on business activities in RSA

Amounts received, not of a capital nature, during the year of assessment, from carrying on business activities in RSA

38
Q

‘Taxable turnover’ calculation for company:

A 
General inclusion
(par 5)
\+Special inclusions (par 6)
(Investment income (excluding dividends) – par 6(b))
-Special exclusions
(excl inv income)
(par 5 & par 7)
EQUAL =‘Taxable turnover’ of natural person
39
Q

Special inclusions (par 6) of TT

A

50% of receipts from the disposal of any capital asset used mainly for business purposes (other than any financial instrument) – par 6(a)

For company(not natural person): Investment income (excluding dividends) – par 6(b)

40
Q

Special exclusions

par 5 & par 7

A

Amounts refunded from suppliers (par 7(d)
Amounts refunded to customers (par 5)
Exempt government grants (par 7(b)
Amounts already subject to normal tax (par 7(c)
For natural person:
also Investment income (par 7(a))

41
Q

‘Taxable turnover’

(par 1, pars 5 -7) includes

A

Including (para 6):
50% of proceeds on sale of a capital asset (refer to par 6(a) below in this regard)
Investment income of a company / cc (other than dividends and foreign dividends)

42
Q

‘Taxable turnover’

(par 1, pars 5 -7) excludes

A

Excludes (para 7)
For a natural person – investment income
Government subsidies s 12 P (same as listed above); and
Amounts accrued before registration as a micro business AND was subject to tax
Refund for goods and services

43
Q

Para 6(a) inclusion:

A

50% of proceeds included in “taxable turnover”
Immovable property mainly used for business
Other assets used mainly for business (excluding financial instruments)

44
Q

example (sole proprietor) registered for MB for 2016 YOA:

Had Doubtful debts and an assessed loss in 2015 YOA

A

During 2015 YOA Mr. Coffee was not registered as a micro business. Thus, his previous allowances, recoupments and assessed losses are not carried into his turnover tax system which commenced in 2016.

45
Q

example (sole proprietor) registered for MB for 2016 YOA: R20 000 received in respect of outstanding debtors on 28 February 2015

A

R20 000 received from debtors were already taxed in 2015 (i.e. not a registered micro business = normal rules). Should not be taxed again (per par 7(c) – special exclusion).
Thus , the R20 000 should be deducted.

46
Q

example (sole proprietor) registered for MB for 2016 YOA: An amount of R12 000 refunded by suppliers in respect of damage goods

A

R12 000 is a refund of an expense, not a cash receipt from carrying on a business.
Thus, the R12 000 should be deducted.

47
Q

example (sole proprietor) registered for MB for 2016 YOA: On the 18 June 2015, R3 000 of was refunded to customers in respect of broken mugs delivered to them

A

Turnover tax to be levied on the net cash receipts of a micro business.
Thus, the R3 000 refund to customer should thus be
deducted.

48
Q

example Mr Coffee (sole proprietor) registered for MB for 2016 YOA: Bean&Mug (Pty) Ltd still owns Mr. Coffee R10 000 for mugs delivered to it on the 18 February 2016

A

Par 5 (general inclusion), turnover tax is levied on amounts received during a specific year of assessment. The outstanding debtor balance of R10 000 does not constitute amounts received during the 2016 year of assessment.
Thus, the R10 000 is excluded from calculating the ‘taxable
turnover’.

49
Q

example Mr Coffee (sole proprietor) registered for MB for 2016 YOA: Interest received on bank account-25 000

A

Interest received
Par 7(a) (special exclusion) specially excluded investment income of natural persons from the taxable turnover calculation. The interest received will however be subject to normal tax and Mr. Coffee can claim a s 10(1)(i) interest exemption against it.

50
Q

example Mr Coffee (sole proprietor) registered for MB for 2016 YOA:Dividends received on listed shares
250

A

Dividends received
Dividend received is also considered to be investment income. Dividends received imply shareholdings in other companies. The question states that the dividends received related to listed shares. Par 4(a) states that shareholdings in listed companies are not prohibited. The dividends is subject to normal tax, but are exempt in terms of s 10(1)(k).

51
Q

example Mr Coffee (sole proprietor) registered for MB for 2016 YOA: On 1 March 2015 he converted the outdoor buildings into a workshop which is used for the manufacturing of the mugs at R50 000. The outdoor buildings made up 20% of the total area of Mr. Coffee’s primary residence. He acquired the primary residence in 2005 for R800 0000.

A

Expenses incurred to convert outdoor buildings into workshop
Any expenses incurred are irrelevant when calculating the taxable turnover. The turnover tax systems only includes receipts and exclude any expenses.

52
Q

example Mr Coffee (sole proprietor) registered for MB for 2016 YOA: Mr Coffee required a large oven to manufacture the mugs and therefore purchased a new oven. He sold the old oven and received R20 000. The oven was only used for business purposes. Expense incurred pertaining to the purchase of new oven used to manufacture mugs

A

-Proceed from sale of oven
R20 000 x 50%
-Expenses incurred in respect of the purchase of the new oven
Any expenses incurred are irrelevant when calculating the taxable turnover. The turnover tax systems only includes receipts and exclude any expenses.

53
Q

example Mr Coffee (sole proprietor) registered for MB for 2016 YOA:Other trading expenses
105 000

A

Normal trading expenses
Any expenses incurred are irrelevant when calculating the taxable turnover. The turnover tax systems only includes receipts and exclude any expenses.

54
Q

example Muggs (Pty) ltd registered for MB for 2016 YOA: Interest received on bank account-25 000

A

Interest income Per par 6(b) investment income for companies is specially included in the taxable turnover calculation. Thus, R25 000 interest income to be included in the taxable turnover calculation.

55
Q 
example Muggs (Pty) ltd registered for MB for 2016 YOA:  Dividends received on listed shares
250
A

Dividend income Dividend received constitute investment income and is included in the taxable turnover of companies. Investment income for companies do however excluding dividends and foreign dividends. Thus, the dividends are excluded from the taxable turnover calculation.

56
Q

At what rate is TT taxed

A

special table in ledge

57
Q

First interim tax payment on TT

A

Within six months from first day of year of assessment
50% of turnover tax payable on the estimated amount (estimate not less than previous year’s assessment unless SARS accept a lower estimate)
Interest on late payment is payable to SARS

58
Q

Second interim payment on TT

A

Last day of year of assessment
Based on estimate of the taxable turnover for the year of assessment
Second interim payment = Turnover tax payable (based on the above YOA estimate) less first interim payment made
Interest on late payment is payable to SARS

59
Q

Penalty levied on TT

A

If estimate for taxable turnover for the YOA is less than 80% of actual taxable turnover for the year of assessment
A penalty of 20% is levied on the difference between tax payable on YOA estimate and 80% of actual taxable turnover

60
Q

Voluntary deregistration

par 9 and par 10

A

A micro business could elect to deregister after the business has remained in the turnover tax system for at least 3 years.
(3 year rule not applicable for year of assessment
commencing on or after 1 Jan 2016)

61
Q

Voluntary deregistration

(par 9 and par 10) applies with effect from

A

Applies with effect from the beginning of the year of assessment

62
Q

Voluntary deregistration

(par 9 and par 10) Election need to be made:

A

Prior to the commencement of the YOA for which deregistration is required
Prior to such later date during the YOA from when the deregistration as may be required as prescribed by Commissioner by future notice.

63
Q

If Voluntary deregistration of MB, can elect to register again at a later date?

A

If a person voluntarily deregisters from turnover tax, the micro business may never re-enter the turnover tax regime.

64
Q

Compulsory deregistration of MB when…

A

A business no longer meets the provisions of the Sixth Scheduled to be classified as a micro business

65
Q

Compulsory deregistration of MB procedure

A

Notify the Commissioner within 21 days that the micro business needs to be deregistered for the following reasons:
the qualifying turnover > R1 million for YOA; or
Reasonable grounds for believing turnover > R1 million for YOA; or
Disqualified = persons specifically excluded as qualifying micro businesses per par 3 and par 4

66
Q

Compulsory deregistration of MB what reasons

A

Notify the Commissioner within 21 days that the micro business needs to be deregistered for the following reasons:
the qualifying turnover > R1 million for YOA; or
Reasonable grounds for believing turnover > R1 million for YOA; or
Disqualified = persons specifically excluded as qualifying micro businesses per par 3 and par 4

67
Q

Compulsory deregistration of MB: when is Deregistration is effective?

A

Deregistration is effective from the commencement of the month following the month during which
the qualifying turnover > R1 million
Reasonable grounds for believing turnover > R1 million for YOA

68
Q

Compulsory deregistration of MB: Qualifying turnover > R1 million and is temporary or nominal in nature:

A

the person need to apply for a decision from the Commissioner as to whether the person could remain registered as a micro business.

69
Q

Compulsory deregistration of MB: When will revert from the turnover tax regime into the normal tax regime

A

Compulsory deregistration:
the micro business revert from the turnover tax regime into the normal tax regime with immediate effect (i.e. first day of the month during which the business is no longer registered for turnover tax)
Assessed for 2 periods during the year of assessment
(i.e. turnover tax period and normal income tax period)

70
Q

If Compulsory deregistration of MB, can elect to register again at a later date?

A

A micro business deregister compulsory from turnover tax, may never return to the turnover tax system.

71
Q

The qualifying turnover > R1 million

A

Need to consider whether it meets the VAT registration requirements to become a VAT vendor. (deregister as a micro business, but register as VAT vendor)

72
Q

On 1 March 2012 Mr Coffee (aged 22) started a business which produced coffee mugs.
He registered the business as a micro business in terms of the Sixth Schedule to the Income Tax Act
Mr Coffee concluded a big contract with Bean&Mug for the supply of mugs of R1 200 000 (ex VAT) i.e. supply of mugs to franchises of R100 000 a month for the next 12 months,
Mr Coffee’s monthly receipts amount to R50 000 per month (excluding the Bean&Mug) contract.
Discuss whether the above would result in Mr Coffee deregistering as a micro business during the 2016 year of assessment by assuming the Mr Coffee interred into the contract on the following dates:
(a)1 July 2015;

A

1 July 2015 = contract date
Receipts of R800 000 (R100 000 x 8months) are received additionally for 2016 YOA
Total receipts = R600 000 + R800 000 = R1 400 000
On 1 July 2015 it is already foreseeable that the qualifying turnover will reasonably exceed R1 000 000 for the 2016 year of assessment.
Mr Coffee needs to notify the Commissioner/SARS within 21 days that he should be deregistered as micro business.
Commissioner/SARS to evaluate the increase in qualifying turnover is nominal and temporary in nature.
Even though the increase may be temporary in nature (the contract may not be renewed), the R400 000 exceeding R1 million threshold will not be regarded as nominal.
Mr Coffee’s business will thus be deregistered from the turnover tax system

73
Q

On 1 March 2012 Mr Coffee (aged 22) started a business which produced coffee mugs.
He registered the business as a micro business in terms of the Sixth Schedule to the Income Tax Act
Mr Coffee concluded a big contract with Bean&Mug for the supply of mugs of R1 200 000 (ex VAT) i.e. supply of mugs to franchises of R100 000 a month for the next 12 months,
Mr Coffee’s monthly receipts amount to R50 000 per month (excluding the Bean&Mug) contract.
Discuss whether the above would result in Mr Coffee deregistering as a micro business during the 2016 year of assessment by assuming the Mr Coffee interred into the contract on the following dates:
1 December 2015

A

1 December 2015 = contract date
Receipts of R300 000 (R100 000 x 3months) are received additionally for 2016 YOA
Thus, total receipts for 2016 YOA = R600 0000 + R300 000 = R900 000
On 1 December 2015 is it not foreseeable that Mr Coffee’s qualifying turnover reasonably exceed R1 million for the 2016 YOA.

Tax (7 decks)

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