tax-deductible

Tax deductible expenses for businesses in South Africa

Do you know the saying that says “money makes the world go round”? Well, so does tax – it makes the country go round. We have a couple of blogs that explain the tax system in South Africa, which we will link down below for you. In this blog, specifically, we will share with you various tax-deductible expenses in your business to help you lower your taxes. 

For context’s sake, TAX DEDUCTIBLE is an item you can subtract from your taxable income to lower the amount of taxes you owe. Let’s suppose you earned R100,000 during the tax year and spent R20,000 on company items. In this example, your taxable business income would be R80,000 instead of R100,000, lowering your tax bill for the year.

Day-to-day business expenses

These are general day-to-day office or business expenses, they are incurred as part of running your business, these include:

  • Employee costs and administration costs
  • Business/office rental costs
  • Office supplies
  • Phone costs
  • Travel and transport, including business vehicle costs
  • Uniforms (if needed)
  • Wholesale purchase costs for goods resold
  • Financial charges (such as bank fees), utilities
  • Legal fees
  • Insurance fees
  • Marketing, advertising, and promotion costs

Wear–and tear (in respect of certain assets)

Also known as depreciation, a wear and tear allowance may be deducted on movable assets used for the purpose of trade. There are no statutory provisions relating to rates of wear and tear, but the SARS has published a table of periods over which the assets may be written off. The rates of wear and tear, based on the cash cost, are calculated either according to the straight-line or diminishing-balance method.

Donations (to approved bodies)

Donations to certain charitable organizations approved as public benefit organizations are tax-deductible, up to a maximum of 10% of taxable income.

Bad debts

Bad debts are tax-deductible if they are owed at the end of the assessment year and they relate to an amount that has been included in the taxpayer’s taxable income in any tax year. Regarding questionable debts, a tax deduction is also offered.

If the loan was made as part of a money-lending business, any bad debts that result from it are deductible.

Education expenses

You can deduct the cost of schooling for yourself or your employees that are directly related to running your firm as a business expense.

Net operating losses

Any losses incurred in the same business in previous years can be carried forward as a tax deduction.

Bonus:

According to SARS, here are some deductions your employees can save from: 

Tax-deductible expenses for Salaries:

Pension fund contributions

Retirement annuity fund contributions

Provident fund contributions (only from 1 March 2016)

Legal costs – under certain qualifying circumstances

Repayable amounts – amount received for services rendered as refunded by that person

If you need any help with TAXES, don’t hesitate to get in touch with us:

Call: 0615238833Email: info@accasesolutions.co.za

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How to boost your business’s Tax Incentives by hiring young people

We had briefly touched on this in our previous blogs, but let’s get a bit deeper into it. President Cyril Ramaphosa emphasized the role of the government in helping businesses thrive in this year’s State of the National Address (SONA). This is mainly for job creation in South Africa. 

With the unemployment rate in South Africa (as discussed in our previous blog), the need to support small businesses so they grow, and also to encourage entrepreneurship, especially amongst the youth has significantly increased. 

Introducing ETI’s

The good news for businesses, they can utilize the tax benefit by hiring young people. This is called the Employment Tax Incentive (ETI), and it’s said to be one of the most powerful tax benefits out there. ETI essentially reduces your overall Pay-As-You-Earn (PAYE) contribution without affecting the employee’s salary. 

> Employers will be able to claim the incentive for a 24 qualifying month period for all employees who qualify.

> The incentive amount differs based on the salary paid to each qualifying employee and whether the qualifying employee was employed after the inception of the ETI programme. 

How ETI works

Simple example:

If you hire 4 young people with salaries of R5000 per month, the total monthly payroll for all 4 employees would be R7500 from your overall monthly PAYE liability in the first 24 months in which the employee qualifies.

This can be done on your payroll system, and your employee’s salary will totally be unaffected. 

NB: The value of the ETI the employer may claim depends on the value of the monthly remuneration paid to the qualifying employee. If the employee has worked less than 160 hours in the month, the remuneration amount must be ‘grossed up’ to 160 hours per month to calculate the value of the ETI. The amount can then be calculated and be ‘grossed down’ in the same ratio.

Source: SARS

The math is simple, employers are rewarded for hiring young people, in return, they gain skills and experience. The private sector grows, and the economy grows. 

Who qualifies?

In his 2022 Budget Speech, Finance Minister Enoch Godongwana announced an increase in the ETI values from 1 March 2022.

An employee qualifies for the ETI if he/she:

  • works for you assists in conducting business, and receives remuneration for their work,
  • is documented in your employer records according to the provisions of section 31 of the BCEA,
  • earns at least the minimum wage,]
  • is between 18 and 29 years old, or is employed in a special economic zone, and
  • has a valid South African ID, a valid asylum seeker permit, or an ID in terms of Section 30 of the Refugees Act.

An employee will not qualify for the ETI if he/she:

  • is a domestic worker,
  • is a “connected person” to the employer,
  • spends more time studying than working (unless the employer and employee have entered into a learning programme as defined in Section 1 of the Skills Development Act, or
  • earns a monthly remuneration of R6,500 or more.

We hope this helps you somehow, feel free to contact us if you need any more clarity. You may also refer to our blog about other effective and legal ways to avoid paying tax in South Africa: https://accasesolutions.co.za/2021/06/17/how-to-avoid-paying-tax-as-a-small-business-in-south-africa/

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All about NPOs in South Africa

We have touched on Public Benefits Organizations not so long ago on one of our #FunFactsWednedays video, let us to continue this chat. 

What is an NPO?

We cannot assume you know, let’s get to understand what an NPO is. An NPO is a Nonprofit Organisation that plays a significant role in society, they take responsibility of the social and development needs of the country.

How to get started: 

Just like any other business/organisation, there must be intent or purpose of starting. Start here: 

1️⃣ Define your goal – before you could even register, you just at least know what your NPO will stand for. Knowing your WHY is important, it will help you navigate things more especially in cases where you need to go back to the drawing board. What exactly do you hope to achieve once you start the organization? Read more: What exactly do you hope to achieve once you start the organization?

2️⃣ Choose your board of Directors – selecting management of the NPO is probably the most fundamental step. Bring in like-minded people on board, it’s even better to get people from different industries who could come in with different perspectives during different situations. 

3️⃣ Draft your memorandum – this is important as it proves your intention to register the organization as a “not-for-profit” company – followed by information about how the organization would be governed, owned, and other important things to note therein.

Lastly, register. 

About registering your NPO

You can submit your non-profit organisation (NPO) application at your nearest provincial  social development office or a local South African Revenue Service (SARS) branch office. 

Benefits of registering is that its certificate:

  • improves your credibility and increases funding opportunities
  • it allows your organisation to open a bank account
  • helps your organisation with tax incentives.

The prerequisites of registering is that you must be one of the following:

  • non-governmental organisation (NGO)
  • community-based organisation (CBO)
  • faith-based organisation (FBO).

Do NPOs pay tax? 

However these organisations are “nonprofit”, they do not automatically qualify for tax exemption, the organisations that meet the requirements set out in the Income Tax Act, 1962 must apply for this exemption. Only IF the exemption application has been approved by SARS, the organisation will then be registered as a Public Benefit Organisation (PBO) and allocated a unique PBO reference number. 

These organisations can issue section 18A certificates – which allow for tax deduction to parties who make donations to such organisations. This becomes an attraction to donors because they get to enjoy these tax benefits therein by making donations to your organisation. 

As a member of a Public Benefit Company/Organisation, familiarise yourself with the conditions of the section 18A or contact Accase Solutions and we will gladly assist: 

✉️: info@accasesolutions.co.za

☎: 0615238833