Reducing tax by using arbitrage
11 May 2015
Posted by: Author: Ben Strauss
Author: Ben Strauss (DLA Cliffe Dekker Hofmeyr)
With effect from 1 March 2015, the highest marginal income tax rate for individuals was increased from 40% to 41%. It appears likely that the rate may increase in future, which means individuals should try to minimise their personal income tax as far as possible.
The highest marginal rate takes effect on taxable income above the amount of R701,301.
There is an opportunity for owners of closely held companies and close corporations to reduce their personal taxes by using the arbitrage between the highest marginal rate, on the one hand, and the corporate income tax rate and the dividends tax rate, on the other hand.
Consider, for example, the case of Ms X who holds 100% of the shares in Company Y and who is employed by Company Y. For the 2015 tax year, Ms X wishes to realise a pre-tax income of R1,5 million.
Now, if Company Y pays Ms X a salary of R1,5 million, she will realise a net, after-tax income as follows:
Please click here to view article.
This article first appeared on cliffedekkerhofmeyr.com.