3 stupid tax moves that will cost you R750k!

I used to write articles on tax for entrepreneurial and financial magazines. I changed my mind and added it to the do-not-discuss-list: religion, politics, Apple vs Samsung and TAX.

Reason? You need to understand and know everything related to the transaction before you can give ANY advice. Number two, everyone is a tax expert. Everyone. I am done arguing with clueless people who gained their tax knowledge around a Friday night’s braai.

Today, I’m the owner of The Beancounter – an amazing accounting firm based in Johannesburg and Pretoria. The only product of the firm is outsourced accounting services. We sign up clients for a fixed monthly retainer and we help them from A – Z. We keep them compliant and structure their businesses to ensure they pay the least amount of tax (legally) possible.

Unfortunately not all accounting firms have such a close relationship with their clients. They maybe see them once a year and never have the opportunity to give them decent advice. I’m trying to make this sound good, because we are a professional industry and I can’t tell you that most clients are getting horrible advice.

I cringe every time we get a new client and I see some of the things that were done for them. This is why I decided to break my own rule and write about tax – the 3 stupidest things you can possibly do to ensure a huge tax bill and how much it will cost you:

1. Buy your house in a company (R372,000.00)

This is the most horrific mistake you can make and it can cost you as much as R372k in taxes. When you buy your own house, SARS allows you to make a profit of 2 million rand when you sell it. Anything above 2 million will be taxed. But if you buy this house in a company, this benefit is not applicable and you will pay tax at an effective rate of 18.6% on every rand of profit that you make.

Example: You buy a house in your personal name in 2002 for R800,000, you sell it in 2013 for R2,800,000.00. You made a profit of R2,000,000.00. You won’t pay any tax.

You do this same deal, but you listened to your buddies around the braai and bought the house in a company. Your tax will be R2,000.000.00 x 18.6% = R372,000.00.

Please note that this is only applicable to the house in which you live in and it is not the same for investment properties.

2. Have more than 1 business registered in your name (R77,949.00)

This isn’t applicable to everyone, so hear me out. Small companies are taxed at a much lower rate than ordinary companies but to qualify as a small business, one of the requirements is that the owner may not be an owner of another company/CC.

So now, you register multiple companies in your name and you lose this status for all your businesses. The result: you will pay up to R77,949.00 more per year in taxes.

Example: You have only one business in your name and qualify as a small business. Your profit for the year is R350,000.00. Your tax will be R20,051.00.

You have exactly the same business but you also decided to have another business in your name. Making the same profit of R350,000.00 for the year. Your tax? R98,000.00

Quiet a difference for a small company who needs cash to grow!

3. Everything is in your name, no trust (R300,000.00)

Estate duty tax – the most unfair tax ever. You work really hard for your money and you pay tax on every cent you make. Then you die and all your after-tax assets gets taxed AGAIN. This is insane but a reality in South Africa.

When you die, you will pay tax at 20% of the value of all your assets (less a fixed rebate of R3.5m). So the idea is never to have more than R3.5m worth of assets in your own name. The rest must go to a trust. This is getting technical but the basic idea is simple: no more than R3.5m assets in your own name.

Example: You have a house worth R2m and a business worth R3m when you die. Your total asset value is R5m. Your tax will be R300,000.00 (R5m – R3.5m x 20%).

If you had placed your business in a trust, the only asset in your name would have been the house. Now your total asset value is below R3.5m and you won’t pay any tax.

3 simple things done differently and a total saving of R749,949.00!!!

I just cringe…

I won’t talk about tax again anytime soon, but I do blog about business and entrepreneurship, so follow me on Twitter, friend me on Facebook, leave a comment below and let’s connect.

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1 Comment

  • Tasneem
    January 23, 2018 at 7:24 am — Reply

    Hi Marnus,
    Thanks so much for all the valuable info. With regards placing the business in a trust – at what point in the financial growth of ones business do you recommend this? I have a new business with no almost no assets currently. As I plan ahead, it will be useful to know when to place the business in trust.
    Then with regards to owning more than 1 business, if one has an off shoot of your main business but with a different branding but operating within the same accounting ecosystem as the main business, is it then wise to just operate the business in legal terms under your main business company registration?

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