Q: How must the drawings account of a sole proprietor
(income is 100% from psychotherapist services) be handled with regards to
taxes? Can the drawings account be written back into the accounting records as
dividends and be subject to dividends tax? Or otherwise how must it be handled?
A: A sole proprietor
is taxed in his personal capacity on his trade and other income. He therefore
cannot in a legal sense have drawings as he cannot borrow from himself.
Furthermore, dividends tax would only be applicable on a distribution from a
company. In our view it is also not advisable to undo transactions that have
already occurred merely to change the tax consequence as the recording of
transactions in the records of taxpayer should merely reflect the substance of
the transaction and its corresponding form.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.