Have you ever seen someone on social media giving tax advice? Please confirm this with a registered tax practitioner/consultant before you get your hopes up.
Taglines such as cut your tax in half, no more tax etc. are just click bait to get more likes/views. These videos usually only give the benefits, but not the criteria to qualify or is just borderline illegal.
If you would like to confirm any tax laws, we are just an email away, but until then here are a few we have seen and the reason why you might run into trouble with SARS:
1. Rather than receiving a salary, invoice your employer.(Start a company and invoice your employer) You can deduct all business expenses and pay less taxes.
The problem here, would be that even though you are not receiving a "salary", you are still seen as a personal service provider. This means that the employer/client should still withold the applicable tax on the "invoices" paid and not all expenses are deductible as with a company that is not a personal service provider.
The criteria for a Personal Service provider:
More than 80% of your income is received from one source
When services are rendered mainly at the premises of the client
Services are rendered under the supervision of the client
If you would be regarded as an employee of the client in any other case
There are exclusions to the rule, but we will discuss that in a future post.
If you would meet the criteria for a Personal Service Provider, we would recommend you see a tax consultant before you start the process. You could avoid unnecessary administration costs.
2. Your business qualifies as a Small Business Corporation (SBC) and you will pay little to no tax. They usually only give the tax rates payable for SBC's and never focus on the criteria needed to qualify. (except for revenue)
The criteria for a SBC:
Gross revenue for a financial year may not exceed R20mil
The entity may be a CC or a (Pty) Ltd. Individuals do not qualify
All shareholders/members have to be natural persons i.e. have to be human
Investment/Personal sevice income may not exceed 20% of all revenue
SBC tax rates are not fixed at 27% as normal companies (The company tax rate changed to 27%) The SBC works in tax brackets and is taxed proportionally. These rates are updated each year and can be found on the SARS website.
3. You can claim all expenses such as drinks with your friends and family, paying for your holidays etc
Expenses that are deductible for tax purposes have to comply with section 11 and 23 of the income tax act, but to avoid boring you with laws we're going to summarise it.
An expense will only be deductible if it was incurred in the production of income, in a financial year and was not capital in nature.
Paying for drinks with friends/holidays didn't generate income for your company and buying a car would be capital in nature, as it is seen as an asset.
There are ways to save on tax, but keep it legal.