8 ways to avoid paying tax

Although government has closed some of the loopholes, there are a number of creative, legal ways for South African businesses to avoid paying tax.

Peter O’Halloran - Tax advice

Based on Internet articles and other sources, here is a brief look at ways to avoid tax that may interest South African taxpayers.

Split income through a company: The breadwinner, as a business owner, channels the business income through a company and then splits the income among key family members. This ensures that the tax threshold of the key family members is used.

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Live on a ship: If you are away from South Africa for extended periods, or are able to operate from various locations, you may avoid being deemed a ‘tax resident’.

Borrow against estate-dutiable property to buy non-estate-dutiable property: This works in the UK, but in South Africa the Estate Duty Act provides for very few non-estate dutiable assets. However, it could work to have your estate wound up under tribal custom. Such estates are generally not looked at for estate duty and are thus free in total.

Enterprise investment schemes: Unfortunately, we in South Africa have no such tax-friendly schemes. What we can do is ensure that if our businesses qualify, they are registered as small business corporations or micro businesses with their lower tax rates.

Avoid transfer duty on property: If commercial properties are company- owned, selling the company results in a transfer of ownership of the fixed property as well. This once applied to residential homes too, but it no longer does.

Offshore holding companies and CGT: Assets held in South Africa by offshore holding companies change hands offshore when the holding company is sold. No capital gains tax is therefore payable here, as the actual asset is the holding company and the CGT is thus payable offshore. The sale is simply not in South Africa. This works in offshore jurisdictions as well.

Go Irish! UK tax rates are higher than those in Ireland, especially for companies. Ireland is far away for SA businesses, but some of our close neighbours have highly competitive tax rates.

The cession of life policies to trust to avoid death duties: Unfortunately, this does not apply in South Africa. The authorities passed a rule long ago that ensured that no matter the owner of the life policy, it is deemed to be part of the estate.

However, there are still a few things that can be done with life policies to enable them to escape estate duty!