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How to utilise the Youth tax employment to your advantage for small business corporation tax status
March 06, 2017
As always….welcome to all the new newsletter subscribers and thank you for all the old ones on board.It’s a privilege that you follow us!
In this newsletter want to show you how you can utilise the Youth Employment Tax Incentives to your advantage to make use of the Small Business Corporation tax status.
Firstly the Youth Employment Tax Incentive (ETI):ETI is applicable to the following employees:
- Ages between 18 and 29- New employed on or after 1 October 2013- Remuneration between R 2,000 and R 6,000 per month
- Valid South African ID or asylum seeker permit - Not related or connected to the employer - Not a domestic worker
The employer receives a monthly tax credit for each qualifying youth employment, against its PAYE payable.
Secondly the requirements for Small Business Corporation.
Any Closed Corporation or Private company registered in SA with ALL of the following applicable:
- All shares or members interest belongs to individuals- These individuals may not hold shares or members interest in any other CC or (Pty) Ltd in South Africa. This exclude dormant companies with assets with market value of less than R 5,000- Gross income of less than R 20 million per annum- Income from investment income or personal services may not be more than 20% of the total income of the entity. The only way an entity with personal services or investment income of more than 20% can be a Small Business Corporation is when it employs three or more full time employees. These employees may not be connected parties to the shareholders, directors or members.
From the above you can clearly see where I am heading If you are deemed as a personal service provider by SARS, you clearly need three unconnected employees to qualify as a Small Business Corporation. Why not include three valid ETI employees to your company. You tax savings will be massive.
Let me provide a simple example below to illustrate my point.
1. Normal income tax at 28 %Company generate net profit of R 500,000 after member of director remuneration- Income tax at 28% is R 140,000
2. Income tax at Small Business Corporation tax Company generate net profit of R 500,000 after member of director remunerationThree ETI salaries at R 2,000 each per month – R 72,000 / annum
- Income tax at SBC is R 33,625- ETI amounts for the first year – (R 30,000)- Additional salary expense – R 72,000 - Total cost – R 75,625
Feel free to email me to consult further relating to your specific situation and needs.Have a blessed month of March.
Yours in tax
Jasper Basson Dryk Holdings
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