Why should your business pay more tax than necessary?

If you structure your business creatively, you’ll be able to save many thousands of rands in tax. Here are some simple, practical ways to do this.

Peter O’Halloran - Tax advice

Taxes are paid by taxpayers with the means to do so. That is obvious.

Yet some tax administrators assume that higher tax rates will mean more money for government. Not so.

As I’ve noted before, there comes a stage at which the taxpayer says, “No more!” Think of a steeplechase.

When the jumps are at the correct height, the race continues at pace. Raise the jumps too high, and the horse balks and perhaps quits the race.

It’s the same with taxes. To change analogies, taxpayers tire of being milked like dairy cows of everything that they produce.

So they modify their behaviour. Dividends too costly at 20% withholding tax? No one takes dividends anymore.

Salaries, loans and vat

Fortunately, dividends are not the only way to get money out of a company. Salaries, taxed on a sliding scale, could work well, especially if your partner and children work in the same company.

Then there are loans. This is more of a short-term option, but with some imagination, loans to and from the company could work for a business owner.

The deeming of interest on loans is not that much of a problem. Such interest is seen as a ‘donation’ and donation tax is set at 20%.

Raised taxes and raised VAT create further opportunities.

The VAT threshold is R1 million, which is a great incentive for a small business to provide excellent value by keeping the turnover below R1 million.

This is especially so if sales are direct to the public. And as far as possible, do business with other non-VAT-registered entities; the savings can be quite considerable.

It might be too late for Income Earning Eddie to deregister as a VAT vendor, but Wendy Wife could run a micro business on the side.

You can enjoy turnover tax at extremely low rates, and zero administration. The top tax rate at a turnover of close to R1 million is 3%!

These are some of the approaches that taxpayers can take. The point is, choose different paths. Those where the hurdles have been raised too high are unaffordable.

Why be poor because of government? Why pay for other people’s mistakes? It’s within your power to choose less expensive tax options.

If ever there was a time to begin to actively manage the tax cost of your business, this is it.

Challenge conventional thinking; it might be costing you unnecessary money!

Advocate Peter O’Halloran is a tax specialist.