Dear taxpayer,

The end of February is just around the corner and time is running out if you want to change over to the Turnover Tax system. The deadline is 28 February 2011. You only have five days left to apply.

For the businesses that qualify for turnover tax, the benefits are huge! And not all of them are tax-related.

Factors definitely worth considering:

•    Record-keeping – if this is too much of a burden or too expensive, Turnover Tax will be a better option.
•    Meeting the requirements of the current tax system – if this is technically too difficult and expensive to comply with, Turnover tax is a better option.
•    Meeting the requirements of the current tax system by hiring a tax practitioner – if this is too costly then Turnover Tax is a better option.
•    Saving in income tax, and dividend tax where applicable. I’ve done the calculations to see if Turnover Tax is the winner – and it is! The tax savings in certain instances were substantial!

The rates for the 2009/2010 year of assessment are as follows (to be updated on 23 February 2011):

 TURNOVER                                                              MARGINAL RATES (R)   
R0 – R100 000                                                           0%
R100 001 – R300 000                                                  1% OF EACH R1 ABOVE R 100 000
R300 001 – R500 000                                                  R2 000 + 3% of the amount above R300 000
R500 001 – R 750 000                                                 R 8 000 + 5% of the amount above R 500 000
R750 001 and above                                                   R 20 500 + 7% of the amount above R750 000

The Practical Tax Loose Leaf team has developed a checklist that you can use to help you decide whether or not your business will benefit from a switch to Turnover Tax.

Use this checklist to determine whether or not your business will qualify for Turnover Tax:

•    Your company has been in operation for more than two months
•    Your company’s turnover doesn’t exceed (or isn’t expected to exceed) R1 million in a year
•    If your business sells assets, the profits don’t exceed R1.5 million
•    Your company is not: a recreation club, a Public Benefit Organisation (PBO) or a Personal Service provider.
•    Your company’s financial year end matches that of SARS (i.e. your financial calendar year starts on 1 March and ends on 28 February)
•    Your company trades in the following format: a sole proprietorship; partnership; cooperative or CC.
•    The sole proprietor, partners or members of the cooperative or CC are natural persons, and they
•    Have no other interests or shares in other companies, CCs, partnerships or cooperatives
•    The investment income of the business doesn’t exceed 10% of the total income.

If you meet these qualifying criteria, then you can apply to join the Turnover Tax system.

Partnerships, watch out!

If you’re a partner in more than one partnership, you won’t qualify for Turnover Tax. Your partner will  still qualify if he’s only a partner in a single partnership and answer s ‘yes’ to all of the questions above.

If this checklist has made it clear that you will benefit from Turnover Tax, then don’t delay. Register before 28 February 2011! And if you need more guidance with the registration, check out chapter T16 in your Practical Tax Loose Leaf.

Good luck!

Marius Maritz
Editor-in-Chief, Practical Tax Loose Leaf

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