Small Business Corporation - where shareholder holds an interest in another (dormant) company
09 March 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: We have a new
client (a natural person) who holds 100% members interest in a CC (e.g. "ABC
CC”). During the year ending 28 February 2010 he acquired a 50% interest in
another CC (e.g. "XYZ CC”).
This newly acquired CC never did any business and was always
dormant. The newly acquired CC was subsequently de-registered during 2011.
Our client’s previous accountants submitted the tax return
for ABC CC and informed SARS that the CC was a small business corporation and
thus qualified for tax relief.
SARS did not agree as all requirements were met except that
the member of ABC CC held 50% interest in XYZ CC as well.
We are of the opinion that his interest in the dormant CC
should disqualify ABC CC from being deemed a small business corporation.
A: Where shares
or any interest are held by a shareholder of the "small business corporation”
in any other dormant or shelf company, that shareholding will not disqualify a
"small business corporation” from being classified as such in terms of section
12E(4)(a)(ii)(hh) provided that:
- That company or close corporation has during the
year of assessment not carried on any trade, and
- Has not during the year of assessment owned
assets, the total market value of which exceeds R5,000.
The above mentioned exclusion is effective for years of
assessment ending on or after 1 January 2010.
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.