MODULE 8

Business tax: Part 2

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Table of contents
1. Introduction .................................................................................................................. 3
2. Capital gains tax ........................................................................................................... 3
2.1 Overview ................................................................................................................ 3
2.2 Residence and CGT ................................................................................................. 3
2.3 Exclusions ............................................................................................................... 4
3. Dividends and dividends tax ......................................................................................... 5
3.1 Dividends ............................................................................................................... 5
3.2 Dividends tax .......................................................................................................... 5
3.3 Taxation ................................................................................................................. 6
3.3.1 Dividend cycle........................................................................................................... 6
3.3.2 Exempt dividends ..................................................................................................... 6
4. Small Business Corporations ......................................................................................... 7
4.1 Introduction to SBCs ............................................................................................... 7
4.2 Special depreciation allowance ............................................................................... 8
5. Turnover tax ................................................................................................................ 9
5.1 Introduction ........................................................................................................... 9
5.2 Micro-business ....................................................................................................... 9
5.2.1 Qualifying turnover .................................................................................................. 9
5.2.2 Exclusions from micro-businesses ............................................................................ 9
5.2.3 Registration and deregistration.............................................................................. 10
5.3 Taxation ............................................................................................................... 11
5.3.1 Rate......................................................................................................................... 11
5.3.2 Taxable turnover .................................................................................................... 12
5.3.3 Dividends ................................................................................................................ 12
5.3.4 Capital gains............................................................................................................ 13
5.3.5 Other taxes ............................................................................................................. 13
5.4 Payment system ................................................................................................... 13
5.5 Record keeping ..................................................................................................... 13
6. Provisional tax ........................................................................................................... 14
6.1 First provisional tax payment ................................................................................ 14
6.2 Second provisional tax payment............................................................................ 15
6.3 Third provisional tax payment............................................................................... 17
6.4 Return dates ......................................................................................................... 18
6.5 Record keeping ..................................................................................................... 18
7. Conclusion ................................................................................................................. 18
8. Appendix ................................................................................................................... 19

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Learning outcomes:

LO2: Outline capital gains tax, secondary tax on companies, and dividends.

LO3: Interpret the concept of Small Business Corporations.

LO4: Practise calculating Turnover Tax and provisional tax.

1. Introduction
In this set of notes, you will take a look at capital gains tax, secondary tax on companies, and
dividends, as well as Small Business Corporations. You will also be given an overview of
Turnover Tax, learn about provisional tax and examine eFiling. All of these are important for
the accounting function in a business.

2. Capital gains tax

2.1 Overview
A capital gains tax (CGT) event is triggered by the disposal (or deemed disposal) of an asset
on or after 1 October 2001. An asset includes any property of whatever nature and any
interest therein.

The base cost of an asset is usually the cost (actually) incurred in acquiring the asset, which
includes the direct costs for its acquisition or disposal and any other costs directly related to
its improvement, as well as certain holding costs. The proceeds from the disposal are the
amounts received by or accrued to the seller of the asset.

If a net capital gain for the year of assessment is calculated, it will be multiplied by the
inclusion rate and then included in the normal tax calculation for the business. For
companies, close corporations and trusts, this inclusion rate is currently 80%. The effective
rate of tax on the gain will therefore be 22.4% (being 80% of the corporate tax rate of 28%)
for companies and close corporations, and 32% (being 80% of the fixed rate of 40%) for
trusts and individuals.

2.2 Residence and CGT

South African residents (including companies) are subject to CGT on the disposal of any
assets regardless of where they are situated.

Non-resident companies are subject to CGT on:

• Immovable property situated in South Africa.

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 • Any assets that constitute an interest in immovable property situated in South
Africa. The disposal of such an interest will be subject to CGT if 80% of its value is
attributable, directly or indirectly, to immovable property. Such an interest
includes equity shares in a company (if the non-resident holds at least 20% of the
interest) or an interest in another entity (such as vested interest in a trust).

• Any asset attributable to a permanent establishment in South Africa through which

the non-resident company conducts business.

• A permanent establishment is a fixed place of business through which the business

of an enterprise is conducted, including:

o A place of management;

o A branch;

o An office;

o A factory;

o A workshop;

o A mine, oil or gas well, etc.; and

o A building site or construction or assembly project which exists for more

than 12 months.

Paragraph 12 of the Eighth Schedule to the Act provides that, where a non-resident
becomes a resident, that person is treated as having disposed of all his or her assets on the
day on which they become a resident. The assets are then deemed to have been reacquired
on the same day at market value. The effect of the provision is that the non-resident will, on
future disposal of the assets, only effectively be taxed on capital growth from the date of
becoming a resident. Immovable property is excluded from this provision.

2.3 Exclusions
The annual exclusion available to individuals does not apply to companies. Various other
gains and losses are excluded from CGT, the most important for companies being:

• Losses on disposal of a debt owed by a connected person;

• Assets used to produce exempt income; and

• Disposal of equity shares in foreign companies (subject to certain requirements).

Small business owners

Small business owners may qualify for a once-off (lifetime) exclusion from capital gains tax
of up to R1.8 million in respect of the disposal (due to death, ill health or reaching the age of

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55 years) of their business. The disposal should be completed within 24 months. The basic
requirements are that:

• The business should have a net asset value of up to R10 million;

• It must have been owned for a minimum period of five years; and

• The owner should have been actively involved in the business.

3. Dividends and dividends tax

3.1 Dividends
A dividend is a distribution of the profits of a company to its shareholders. Dividends are
declared by way of proposal and approval by the directors and subsequent approval by the
shareholders of the company at its annual general meeting (AGM).

In certain circumstances other distributions may be deemed to be a dividend and give rise to
a dividend tax liability. Section 64C of the Act deems such distributions to be dividends.

These include, but are not limited to:

• Loans made to the shareholders or their relatives at an interest rate less than the
official rate of interest.

• The distribution of cash or assets to a shareholder.

• The waiver of an obligation of a shareholder to the company.

• Inadequate payment or excessive interest which has been paid or charged

between connected persons or shareholders and an adjustment (transfer-pricing
adjustment) has been made in terms of section 31 of the Act.

3.2 Dividends tax

From 1 April 2012, a new dividends withholdings tax was introduced at a rate of 15%. This
tax is a tax on the shareholder, whereas the previous dividends tax (STC) was a tax on the
business. However, as it is a “withholding tax”, the company declaring the dividend will be
required to withhold the relevant tax and pay it over to SARS. From 22 February 2017 the
dividends tax was increased to 20% on all dividends declared on or after this date.

Example:

Under dividends tax, if a company declares a dividend of R100 000 on 1 April 2017, the total
payout would be just the R100 000 declared, and the shareholders would only receive R80
000 after the 20% withholding tax had been deducted.

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Withholdings tax = 20% x R100 000 = R20 000

Net payment made to shareholders = R100 000 (Dividend) – R20 000 (Withholdings tax) =
R80 000

Under dividends tax, the shareholder effectively receives a smaller dividend as the tax is on
the shareholder, and not on the business.

3.3 Taxation
3.3.1 Dividend cycle
Dividends tax is payable on the net amount of dividends declared, less dividends received
during a dividend cycle. Note that exempt dividends received are generally not set off
against dividends declared when determining the net dividend.

A dividend cycle is the period between the last dividend declaration and the most recent
declaration by a company. A dividend cycle also begins when a company is first incorporated
or becomes a South African resident. Where a deemed dividend occurs, the date of
declaration is deemed to be the date when the shareholder became entitled to the cash or
asset constituting the deemed dividend.

A company is considered a resident if it is incorporated, established or formed in South

Africa or it has its place of effective management in South Africa. If a foreign company
moved its headquarters and operations to South Africa, it would be considered to have its
place of effective management in South Africa, and would therefore become a South African
resident.

3.3.2 Exempt dividends

Dividends tax is not payable on certain dividends. The most important are the following:

• Dividends declared by certain exempt companies;

• Dividends declared by gold-mining companies;

• Dividends declared between companies forming part of the same group of

companies (subject to certain requirements);

• Dividends declared by a micro-business to the extent that the dividends declared

do not exceed R200 000 in a year of assessment; and

• Certain liquidation and distribution dividends.

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4. Small Business Corporations
4.1 Introduction to SBCs
SARS introduced the concept of a Small Business Corporation (or SBC) to give some relief to
small businesses. An SBC is not a type of company (as compared to a private company or
close corporation, for example), but is rather a type of tax concession that existing
businesses can qualify for. Qualifying as an SBC has a number of benefits, the most
significant of which is that the business pays substantially reduced tax, on a tiered basis. For
the 2021/22 tax year, a standard company would pay tax at a flat rate of 28% on taxable
income, whereas an SBC pays tiered rates: 0% tax on its first R83 100 taxable income for the
year, which only jumps up to the standard 28% rate for any taxable income over and above
R550 001. The following table sets out the tax brackets for Small Business Corporations for
the 2021/22 tax year:

Taxable income (R) Rate of tax (Rands)

0 – 91 250 0% of taxable income

91 251 – 365 000 7% of taxable income above 91 250

365 001 – 550 000 19 163 + 21% of taxable income above 365 000

550 001 and above 58 013 + 28% of taxable income above 550 000

Example:

A small business corporation has taxable income of R450 000 for the 2021/22 year of
assessment.

Step 1: Determine what bracket the taxable turnover falls into in the table above:

Using the table above, their taxable income falls into the “R365 001 – R550 000” bracket,
which means that they must pay R19 163 + 21% of each rand above 365 000.

Step 2: Determine the amount above the amount which a fixed rate is paid:

In this example, 21% is paid on taxable turnover above R365 000:

R450 000 – R365 000 = R85 000

Step 3: Calculate the fixed percentage on the amount determined in Step 2:

21% x R85 000 = R17 850

Step 4: Add the fixed amount from the table to the amount calculated in Step 3 above:

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The total tax payable = R19 163 + R17 850 = 37 013

Not just any company can qualify as an SBC, however – there are some stringent
requirements to be met (and every requirement must be met for the entire year to qualify):

• Only companies (including CCs) can qualify as an SBC – no sole proprietors or

partnerships qualify.

• The business’ turnover must be under R20 million for the year.

• The members or shareholders cannot hold an interest in any other business (with
certain specific exceptions).

• All members or shareholders must be natural persons (private individuals).

• No more than 20% of the business’ income may come from investments or
rendering a personal service.

• The business may not be an employment company.

Personal services:

Expanding on the fifth point, a “personal service” is defined as one of the following if it is
rendered personally by an individual who holds shares or a member’s interest in the
business:

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

auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service
broking, health, information technology, journalism, law, management, real estate broking,
research, sport, surveying, translation, valuation, or veterinary science.

It is important to note that this “personal service” restriction does not apply if the business
employs three or more full-time staff who are engaged in providing the services, and who
are not members or shareholders, or connected to any members or shareholders.

4.2 Special depreciation allowance

As an added benefit to Small Business Corporations, they may, in one tax year, deduct 100%
of the cost of plant and machinery, owned by or acquired by the taxpayer (the business)
under an instalment credit agreement, brought into use for the first time by the taxpayer for
the purpose of the taxpayer’s trade (other than mining or farming), and used by the
taxpayer directly in a process of manufacture carried on by the taxpayer. The deduction is
claimed in the year that the asset is brought into use (i.e. it is not apportioned for part of the
year). Non-manufacturing assets may be written off over 3 years as follows: 50%; 30%; 20%.

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5. Turnover tax
5.1 Introduction
Micro-businesses, which are defined as those businesses with turnover of up to R1 million,
may elect to be taxed in terms of the turnover tax system. The business is effectively taxed
on its receipts or revenue, regardless of what the profit may be. The main advantage of this
system lies in its simplicity and ease of administration. The Income Tax Act exempts a micro-
business from normal income tax except for remuneration received from employment, and
investment income.

Investment income is defined as income in the form of:

• Annuities;

• Dividends;

• Interest;

• Rental from immovable property;

• Royalties or similar income; and

• Proceeds from the disposal of financial instruments.

5.2 Micro-business
5.2.1 Qualifying turnover
A micro-business is defined as any corporate entity or natural person (not a trust) that has
“qualifying turnover” of less than R1 million. Qualifying turnover is defined as the total
receipts (not accruals) from carrying on a business, less:

• Any receipts of a capital nature; and

• Certain amounts exempt from income tax (including government grants, export
incentive rebates, etc.).

However, where the receipts from the disposal of immovable property and other capital
assets used mainly for business purposes exceed R1.5 million over a 3-year period, that
person may not qualify as a micro-business.

5.2.2 Exclusions from micro-businesses

Any person who has an interest in another corporate entity may not qualify as a micro-
business. Similarly, where any shareholder or member of an entity has interests in another
corporate entity, the first-mentioned entity may not qualify as a micro-business.

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Certain interests are allowable, including:

• Shares in listed companies;

• Portfolios in collective investment schemes;

• Interests in bodies corporate and share block companies;

• Interests in venture capital companies as defined in the Act;

• Interests of less than 5% in social or consumer co-operatives, or primary savings

co-operative banks; and

• Interests in friendly societies (societies or funds formed to look after the interests,
and potentially provide for the welfare of, members) .

A business cannot qualify as a micro-business if more than 20% of its total receipts come
from:

• Income from professional services rendered (where the business is a natural

person); and

• Investment income and professional services (where the business is a company).

Professional services:

Professional services include accounting, actuarial science, architecture, auctioneering,

auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service
broking, health, information technology, journalism, law, management, real estate,
research, sport, surveying, translation, valuation, and veterinary science.

A personal service provider or labour broker (without the necessary exemption certificate)
may not qualify as a micro-business.

A corporate entity may not qualify as a micro-business if its year of assessment does not end
on the last day of February, or any of its shareholders are not natural persons, or it is a
public benefit organisation or recreational club approved by the Commissioner in terms of
the Income Tax Act.

A partnership may not qualify as a micro-business if not all of the partners are natural
persons, or the relevant person is a partner in more than one partnership, or the partnership
is registered as a VAT vendor in the year of assessment.

5.2.3 Registration and deregistration

Registration as a micro-business is voluntary. Deregistration may be voluntary or
compulsory. Compulsory de-registration can occur when the qualifying turnover exceeds, or
is on reasonable grounds expected to exceed, R1 million in a year of assessment, or where

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any of the exclusions mentioned above apply. If any of these events occur, the
Commissioner must be notified.

Upon notification, the Commissioner must determine whether or not the excessive turnover
is nominal and of a temporary nature and decide if the entity is to be deregistered.

When a micro-business is deregistered it may not elect to utilise the turnover tax system
again in the future.

5.3 Taxation
5.3.1 Rate
Turnover tax is levied on the taxable turnover of a micro-enterprise according to the
following table for the 2023/22 tax year:

Taxable turnover (Rands) Tax liability

0 – 335 000 0%

335 001 – 500 000 1% of taxable turnover above R335 000

500 001 – 750 000 R1 650 + 2% of the amount above R500 000

750 001 – 1 000 000 R6 650 plus 3% of the amount above R750 000

These rates were the same for the 2022/21 tax year.

Example:

A micro business has taxable turnover of R625 000 for the 2023/22 year of assessment.

Step 1: Determine what bracket the taxable turnover falls into in the table above:

Using the table above, their taxable turnover falls into the “R500 001 – R750 000” bracket,
which means that they must pay R1 650 + 2% of taxable turnover above 500 000.

Step 2: Determine the amount above the amount which a fixed rate is paid:

In this example, 2% is paid on taxable turnover above R500 000:

R625 000 – R500 000 = R125 000

Step 3: Calculate the fixed percentage on the amount determined in Step 2:

2% x R125 000 = R2 500

Step 4: Add the fixed amount from the table to the amount calculated in Step 3 above:

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The total tax payable = R1 650 + R2 500 = R4 150

Notice how this procedure is exactly the same as small business corporations in Section 4.1
above.

5.3.2 Taxable turnover

Taxable turnover is defined as any amount not of a capital nature received by a micro-
business during a year of assessment from business activities carried on in South Africa.

Certain amounts are specifically included in taxable turnover. These include:

• 50% of capital receipts derived from immovable property and capital assets used
mainly for business purposes (excluding financial instruments), and

• Investment income received by companies, close corporations, and co-operatives.

Certain amounts are specifically excluded from taxable turnover. These include:

• Investment income received by natural persons;

• Certain amounts exempt from income tax (including government grants, export
incentive rebates, etc.);

• Amounts subject to normal income tax, and

• Refunds received or paid.

5.3.3 Dividends
The first R200 000 of any dividends declared by a micro-business are exempt from dividends
tax. Where that amount is exceeded, the normal rules will apply.

Step 1: Is the dividend greater than R200 000? If Yes, dividends tax will be payable on the
amount greater than R200 000. If No, the dividend is exempt from dividends tax.

Step 2: Calculate the amount of dividend declared that is greater than R200 000

Step 3: Calculate dividends tax as 20% of the amount calculated in Step 2.

Example: A microbusiness declares a dividend of R100 000.

Step 1: Is the dividend greater than R200 000?

This dividend is exempt from dividends tax because it is less than R200 000, so no dividends
tax is payable.

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5.3.4 Capital gains
Certain capital gains of a micro‐business are excluded from capital gains tax.

Capital gains in respect of immovable property are only excluded to the extent that the
property is used for business purposes.

5.3.5 Other taxes

The normal donations tax provisions apply to a micro-business.

A micro business must also comply with all the usual provisions in respect of PAYE, SDL, and
UIF contributions.

Registered VAT vendors were not allowed to register for turnover tax until 29 February
2012. Some relief was available to vendors who deregistered from VAT in order to register
for turnover tax.

5.4 Payment system

Turnover tax is paid in a manner similar to provisional tax.

A first interim payment must be made, equal to 50% of the turnover tax payable. This
payment must be submitted with an interim return. Payment must be made before 31
August in the year of assessment. The payment is determined on the basis of the estimated
taxable turnover for the year, where the estimate may not be less than the taxable turnover
of the previous year.

A second interim tax return must be submitted by the end of the year of assessment, i.e. the
last day of February. The return must be accompanied by payment of the tax liability based
on the estimated turnover tax, less the amount paid in the first interim payment. Where the
second estimate is less than 80% of the actual taxable turnover for the year, SARS will levy
additional tax of 20% on the difference.

5.5 Record keeping

The record‐keeping requirements of a micro-business are simple. A micro-business
must maintain the following records:

• All amounts received during the year of assessment;

• Record of all dividends paid;

• A list of all assets with a cost price exceeding R10 000; and

• A list of all liabilities exceeding R10 000.

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6. Provisional tax
Provisional tax operates almost exactly the same way for companies as it does for
individuals. A close corporation and a private company are automatically registered as
provisional taxpayers.

6.1 First provisional tax payment

The first provisional tax payment must be made no later than 6 months after the beginning
of the year of assessment. For example, for the year ended 28 February 2019, the first
provisional tax payment must be made before 31 August 2018.

The amount payable is computed by:

• Estimating the anticipated taxable income for the year.*

• Calculating the tax payable on the estimated taxable income.

• Dividing the tax payable by two.

*Note: If the estimated taxable income is more than the basic amount, the provisional tax
payment may be calculated using the basic amount as the estimated taxable income, but
may generally not be less than the basic amount.

The “basic amount” is the taxable income on the most recent assessment received from
SARS (i.e. The previous year’s assessment). The taxable income may be estimated at an
amount less than the basic amount with the consent of the Commissioner.

How do companies calculate this payment in practice?

The first payment needs to be made six months into a company’s tax year. Using the
example above, this would be at the end of August 2018. At this point a company will have a
general idea of how much income they have made so far (up to August 2018), and could
probably double this to make a reasonable estimate of the full year's income (up to February
2019).

Once they have that estimate they can calculate the tax payable on that taxable income
using the appropriate tax tables given above. However, it would be unreasonable for SARS
to expect them to pay over a full year's worth of tax in August already, so they only ask for
50% of the company’s estimated tax payment. Note this is 50% of their estimated tax
liability, not of their taxable income!

Now, this is where it can get complicated! In general, SARS thinks that businesses should
grow from year to year so they want to make sure that when companies estimate their
taxable income, they don't estimate an amount less than the previous year.

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For example, last year a company had taxable income of R500 000. This year they have
made R300 000 in taxable income by August. Therefore, for the full year they estimate they
will make R600 000 in taxable income. (Simply double)

Now you can calculate how much tax would be payable on this amount:
As this is a standard company their tax liability is simply 28% of their taxable income as
follows:
Tax payable = 28% x R600 000 = R168 000

Remember this is the tax for the whole year, not just for the first 6 months!

So the company would need to pay 50% x R168 000 = R84 000 to SARS as the first payment.

Notice how last year their tax assessment would have been calculated on the R500 000 of
taxable income they earned, which is less than this year’s estimate (R600 000) so they are
safe to use this year's estimate. If however, they had made R700 000 in taxable income last
year they would have to calculate this year’s tax payable based on R700 000, and paid over
50% of that instead! This is because last year's taxable income was more than this years.

This process can become quite complicated, so it is a good idea to follow the step-by-step
approach given below:

Summary of how to calculate provisional payment 1:

Step 1: Estimate taxable income for the whole year

Step 2: Compare this to the prior year as follows:

Step 2.1: If the amount is more than last year - Calculate the first payment based on the
current year estimate of taxable income.

Step 2.2: If the amount is less than last year - Calculate the first payment based on the prior
year actual taxable income. (Unless consent is given from SARS to use the lesser amount)

Step 3: Calculate the income tax using the appropriate tax tables.

Step 4: Calculate 50% of the total (annual) liability (calculated in Step 3) and pay it over to
SARS as the first provisional tax payment.

Note that the process is exactly the same for micro businesses, except that their tax liability is
calculated on taxable turnover, and not on taxable income.

6.2 Second provisional tax payment

The second provisional tax payment must be made at the end of the year of assessment
(generally 28 February). The amount payable is computed by:

• Estimating the anticipated taxable income for the year.

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 • Calculating the tax payable on the estimated taxable income.

• Deducting the first provisional tax payment.

The taxable income may not be estimated at an amount less than the basic amount without
obtaining the Commissioner’s consent. However, if the estimated taxable income is less than
the basic amount and it turns out to be less than 90% of the actual taxable income at year
end (80% if your income exceeds R1 million a year), a penalty of 20% may be levied.

How is this payment calculated in practice?

It is now the end of the year (February 2019) and even though the company originally
estimated that they were going to make R600 000 this year, they now actually estimate that
they made R650 000 of taxable income for the full year.

The reason this is called an "estimate" is that a company would have an amount in their
accounting system, representing “actual” taxable turnover, but sometimes auditors make
adjustments after year end, or other adjusting journals may get passed, which could alter
the amount slightly after February before the company’s books are closed for the year, but
generally it is an “actual” amount that is unlikely to change significantly after year end, and
in most cases the accountant is likely to be able to come pretty close to an “actual” number
by the end of February.

The company’s estimate has changed for the full year, so they need to calculate their tax
liability again, and this time it's on a different amount, being R650 000! This means that back
in August they didn't correctly estimate their taxable turnover for the full year, and it seems
that the company performed better than expected in the second half of the year.

Therefore, their tax liability for the full year is calculated as follows:
Tax payable = 28% x R650 000 = R182 000

However, remember that they already made their first payment of R84 000 in August, so
they only need to “top up” their payment at year end and pay the difference.

Therefore, the second provisional tax payment is calculated as follows:

Second provisional tax payment = Total tax payable for the full year – First provisional tax
payment = R182 000 – R84 000 = R98 000

Therefore, the company will pay R98 000 to SARS at the end of February. You can think of
this very much like buying something on credit and paying it off in instalments. In this case
the company owed R182 000, on which they paid an instalment of R84 000 in August, so
they still needed to pay R98 000 to pay off their total liability to SARS.

In this way they have paid their tax in two instalments, instead of in one big lump sum in
February! This also helps the company to spread the cash flow, instead of needing to come
up with all the tax in February at year end.

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Summary of how to calculate provisional payment two:

Step 1: Identify the “actual” taxable income for the whole year.

Step 2: Compare taxable income to prior year to ensure it is not less than the prior year. If it
is less obtain consent from the Commissioner to use the lesser amount, otherwise calculate
tax payable on the prior year taxable income, the “basic amount.”

Step 3: Calculate the tax liability on the amount identified in Step 1.

Step 4: Subtract payment one from the total liability, and pay over the balance to SARS as
payment two.

Late payment
A penalty of 10% and interest at the prescribed rate (currently 10.5%) may be levied on the
late payment of the first and second provisional tax payments. In addition, if the second
estimate is not submitted timeously, a penalty of 20% may be levied.

The Commissioner may waive the whole or part of the penalty if he is satisfied that the
taxpayer did not intend to evade or postpone the payment of tax. However, the interest
levied on late payment may not be waived by the Commissioner and the interest is not
allowed as a deduction for tax purposes.

6.3 Third provisional tax payment

Where the taxable income of a private company and close corporation exceeds R20 000, the
tax liability for that year of assessment must be discharged within seven months of the year-
end if the year-end is February, or within six months if the year-end is any month other than
February. A further provisional tax payment may be made to enable the taxpayer to meet
the above requirement.

Should the total tax liability for the year not be discharged within the six or seven-month
period, interest at the prescribed rate will be payable from the end of the six- or seven-
month period to the due date of the assessment or the date the liability is discharged,
whichever is the earlier. As the third provisional tax payment is not compulsory, no penalties
are levied if the payment is late or underestimated.

Note:

A third payment is needed in practice due to the fact that some large companies can take a
few months to finalise their accounts after their year end. Therefore, they estimate their
taxable income at year end (February) in order to make their second provisional tax
payment, but once they have finalised their accounts (for example by April) they may
discover that they underestimated their taxable income. They are then given the
opportunity to pay the tax on the underestimated amount as a third provisional tax
payment.

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6.4 Return dates
Provisional and annual returns for CC’s and Companies:

1st provisional tax payment Six months before financial year-end

2nd provisional tax payment At financial year-end

3rd provisional tax payment If taxable income exceeds R20 000

– February year-end Seven months after financial year-end

– Year-end other than February Six months after financial year-end

6.5 Record keeping

Accounting records must be kept to enable the business to prepare a complete and accurate
tax return. The records must clearly establish the income and the expenses of the business.
A separate bank account should be opened for the business so that business expenditure
can easily be identified and private and business expenditure are not confused.

In addition to the permanent books of account, your tax return and all other information
that may be required to support the entries in your books of account must be retained, e.g.
paid cheques, invoices, receipts, etc. Supporting documentation should be filed in an orderly
manner and kept in a safe place.

Books and records of the business are required to be available at all times for examination
by the Receiver of Revenue. All records, namely ledgers, cash books, journals, chequebooks,
invoices and all other books of account relating to the business must be kept for a period of
five years from the date on which the tax return relevant to the last entry in such record was
submitted to the Receiver of Revenue. Certain specific documents (such as your records of
company formation, annual financial statements, etc.) should be kept for at least fifteen
years.

7. Conclusion
In this part of this module’s notes, you have examined capital gains tax, including the
aspects of residence, exclusions, relief and company distributions. You also learnt how
secondary tax on companies (STC) and dividends is applied, including the dividends cycle and
how the tax is levied. Small Business Corporations have special allowances that are granted
to them.

You also examined turnover tax and how it applies to micro‐businesses, and how provisional
tax works.

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8. Appendix
For reference purposes the tax tables for the 2021/22 tax year have been provided. Please
note all tax tables referenced in the text above refer to the 2022/23 tax year unless
otherwise stated.

Small Business Corporations

The following table sets out the tax brackets for Small Business Corporations for the 2021/22
tax year:

Taxable income (R) Rate of Tax (Rands)

0 – 83 100 0% of taxable income

83 101 – 365 000 7% of taxable income above 83 100

365 001 – 550 000 19 733 + 21% of taxable income above 365 000

550 001 and above 58 583 + 28% of taxable income above 550 000

Micro Businesses
Turnover tax is levied on the taxable turnover of a micro-enterprise according to the
following table for the 2021/22 tax year:

Taxable turnover (Rands) Tax liability

0 – 335 000 0%

335 001 – 500 000 1% of taxable turnover above R335 000

500 001 – 750 000 R1 650 + 2% of the amount above R500 000

750 001 – 1 000 000 R6 650 plus 3% of the amount above R750 000

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