It gives me great pleasure to welcome JP van der Merwe, Mark Bradley and Carien Senekal as regular contributors to Vision. They are well known in optometric circles and they have over fifty optometric practices as clients. With this kind of experience, they have well established optometric financial bench marks and they know what an optometric practice should be able to achieve. –Ed.
The legal entity
It is any close corporation, co-operative, private company or personal liability company.
Optometrists can only practice as a sole proprietor, partnership or personal liability company. We recommend that you trade as a personal liability company.
All shareholders or members of a qualifying entity must, at all times during the relevant year of assessment, be natural persons. No part of the share capital or members interest of an SBC can therefore be held by a juristic person such as another company.
The shareholders of the qualifying entity may not at any time during the year of assessment hold any shares in another company.
However, if you hold shares in a company that is listed on the JSE you will not be disqualified under this provision.
Another exclusion is any close corporation, company or co-operative, if it has not traded during any year of assessment and during any year of assessment owned assets of which the total market value exceeds R5000.
Gross income limitations
The gross income of a qualifying entity may not exceed R20 million for the specific year of the assessment.
An entity cannot qualify as an SBC if more than 20% of the total of all receipts and accruals (excluding capital receipts) and capital gains, consists of investment income and income from the rendering of a personal service.
The definition of “personal service” according to the Income Tax Act, means any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health, IT, journalism, law, management, real estate broking, research, sport, surveying, translation, valuation or veterinary, science, if :-
(a) the service is performed personally by any person who holds an interest in that company; and
(b) that company does not throughout the year of assessment employ 3 or more full-time employees (other than any employee who is a shareholder in the company, or who is a connected person in relation to a shareholder) who are in a full-time basis engaged in the business of that entity.
From the criteria mentioned under business activity above, it is clear that an optometric practice falls into the category for health and is therefore seen as a personal service. This means that in order to qualify as a SBC you need to employ 3 or more full-time employees other than yourself and also excluding any employees that is family.
However, when one looks at the composition of the income in an optometric practice the income generated by the optometrist for testing eyes is less than 20% of the total income generated in the practice. Therefore, the business will qualify for retail rather than health and you will not be required to comply with the staff requirement mentioned under business activity above.
Through qualifying as a SBC a business can have a maximum tax saving of R94 902 for the 2018 tax year of assessment. Small Business Corporation (SBC) tax rates for the year of assessment between 1 April 2017 and 31 March 2018
|Taxable income (R)||Tax rate (R)|
|0 – 75 750
75 751 – 365 000
365 001 – 550 000
550 001 – and above
+7% above 75 750
20 248 + 21% above 365 000
59 098 + 28% above 550 000
Contact your accountant to make sure that your business is making use of this tax benefit.