SBC – does an entity qualify if a shareholder holds an interest in a dormant company?
15 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: I have a
taxpayer who we applied the Small Business Corporations Tax rates to
(business). SARS have rejected this taxation and taxed the business at 28% as
the director appears as a director on more than one company. When enquiring
from the director, he confirms that the 1 company is a non-trading property
owning entity and the other company never traded and is in fact in
deregistration process with CIPC. Do we have any grounds to object?
My opinion is that the objection should be allowed if an
affidavit can be provided to confirm that the company he appears as a director
was not trading.
A: We don’t have
enough information to provide the guidance required. The relevant law is found in section 12E(4)
and the grounds of the objection should address that. Interpretation Note: No. 9 (Issue 5) provides
more detail and the current practice prevailing.
We will some comments (limited to the points raised in your
We assume that SARS applied section 12E(4)(a)(ii) in this
instance. The relevant parts read as follows:
(hh) any company, close corporation or cooperative if the
company, close corporation or co-operative—
(A) has not during any year of assessment carried on any
(B) has not during any year of assessment owned assets, the
total market value of which exceeds R5 000.
(ii) any company, co-operative or close corporation if the
company, co-operative or close corporation has taken the steps contemplated in
section 41 (4) to liquidate, wind up or deregister: ...
"...none of the
shareholders ... at any time during the year of assessment of the company...
holds any shares or has any interest in the equity of any other company as defined
in section 1(1), other than...” the approved ones. The two ‘approved ones’ that may be relevant
to your request are:
The objection will then have to address, in respect of the
"non-trading property owning entity”, that the total market value of assets
didn’t exceed R5 000. With respect to
the one being deregistered it must be proved that the steps contemplated in
section 41(4) to liquidate, wind up or deregister were in fact taken. Both of these are factual issues and an
affidavit will not suffice. Refer to
section 102(1)(c) of the Tax Administration Act.
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.