Small Business Forum Blog

Goolam Gani, from Gani Associates Consulting (an SBF member), wrote this article about Capital gains tax.

Capital gains tax (or CGT) arises on the disposal of an asset. As the definition of ‘asset’ includes rights or interests of whatever nature in fixed property, it is clear that CGT will arise not only on the outright sale of a property but also when limited interests in property, such as usufructs and bare dominiums are sold.
In the case of an interest in fixed property situated in South Africa, residents and non-residents are liable to CGT. Non-residents are also liable to CGT on the disposal of rights in property-owning companies, close corporations and trusts, in certain circumstances.

The definition of ‘disposal’ includes not only sales but also various deemed disposals, the most important of which is the death of a natural person. When a taxpayer dies, he or she is deemed to have disposed of all assets at market value, thus triggering a potential capital gain. Exclusions include property left to a surviving spouse or to a qualifying Public Benefit Organisation. Where property is donated, capital gains tax arises, using the full market value as ‘proceeds’, unless the donation is to the taxpayer’s spouse or a qualifying Public Benefit Organisation.

CGT is in reality not a separate tax, but forms part of normal income tax. The taxpayer’s capital gain is determined by deducting the base cost of the asset from its proceeds. ‘Proceeds’ is the gross selling price of the property. ‘Base cost’ is the cost of the property or, alternatively, the value of the property at 1 October 2001 (where the asset was owned by the taxpayer as at this date – see below), plus various other costs, the most common of which are: the cost of improvements, transfer duty on purchase, valuation costs, conveyancer’s fees and advertising costs (to find a buyer). Contrary to popular belief, the cost of bond interest cannot be claimed where the property is sold, unless the property was used exclusively for business purposes and the interest was not claimed as a normal tax deduction.

Once the capital gain has been determined, the taxpayer deducts the primary residence exclusion (only where the taxpayer is a natural person and where the property was the taxpayer’s primary residence) of R 1.5 million (2009 amount) and the annual exclusion of R 16 000 (only where the taxpayer is a natural person – 2009 amount).

The result is multiplied by the taxpayer’s inclusion rate and included with the taxpayer’s other taxable income for the year. This gives rise to the following maximum effective rates of CGT:

Inclusion rate  Maximum Effective rate
Individuals                             25 %              10 %
Companies (incl CCs)             50 %              14 %
Trusts                                    50 %              20 %

Where the asset was owned by the taxpayer at 1 October 2001 (known as the ‘valuation date’), the value of the property at the valuation date can be determined in one of three ways: using an actual valuation as at this date, using the time-apportionment base cost formula or using 20 % of the proceeds as the value at valuation date. The taxpayer is free to choose whichever method gives the best result (where there is a capital gain).

A simple example of an application of the time apportionment formula is as follows:

EXAMPLE
Say a property cost R 500 000 in September 1996 and was sold for R 2 million in June 2007. Selling costs amounted to R 100 000.

One takes the R 500 000 plus [(R 2 million less R 100 000) less R 500 000] * 6 / 12 = R 1.2 million. This is the valuation date value according to the time apportionment method. The ‘base cost’ of the property is then R 1.2 million plus the selling costs of R 100 000 equals R 1.3 million. It should be noted that in applying this formula, part of a year (before or after 1 October 2001) is treated as a full year.

If the seller is a non-resident, a withholdings tax is applied to the proceeds, at rates of either 5, 7.5 or 10 % of the proceeds, depending on whether the seller is a natural person, company (or CC) or trust, respectively.

Goolam Gani

Gani Associates Consulting

Goolam Gani, from Gani Associates Consulting (a SBF member), wrote this article about the new South African Vat registration threshold.

The new Vat registration threshold has brought about just as much confusion as it has relief. Many clients are not sure whether they should be looking to the new threshold of R1 million already, or whether the R300 000 threshold still applies. Another common question is: “if I fall between the R300 000 and R1 million marks, can I deregister as a Vat vendor today?”

Firstly, as it stands now, the R300 000 threshold is still in force until legislation enforcing the new threshold is promulgated. For you, this means that if your turnover exceeds R300 000 (but is below R1 million) you still have to be registered for Vat – until further notice from the authorities!

However, when the legislation is passed, you will be able to deregister. But don’t be too hasty – it may be an easy process but it could get quite costly as you will be liable for output tax on stock and assets on hand!

This is what should happen:

Step 1: Firstly, you must make an application to SARS in writing - bearing in mind that SARS has a discretion and may disallow the cancellation of your registration!

Step 2: If your request for cancellation is allowed, it will normally commence on the last day of the tax period in which application was made to cancel the registration (this date will be indicated by SARS).

Step 3: Even if your cancellation goes through, it may not be the end of your responsibilities. You will still be held liable to account for output tax for any and all unsold assets and stock held by you on the date of cancellation of the registration.

Goolam Gani

Gani Associates Consulting

We were sent this by Sanlam COBALT and thought it was pertinent to share.

Last time we spoke about becoming more aggressive at sales and marketing. This time we want to speak about how you batten down the hatches. When a ship goes into a storm, the captain will normally give instruction to batten down the hatches. This ensures that there are no unnecessary leaks. The analogy holds true for companies going into bad times.

This is the best time to ensure that you have no unnecessary leaks in the business. You will naturally look towards your expenses to eliminate the unnecessary. We are asking you to do it in a slightly different way. We want you to split your expenses into productive and non-productive expenses. Productive expenses can be defined as those that contribute positively to the bottom line.

An example of this would be your salary for the sales person. Theoretically they should be contributing positively to the bottom line and therefore would be considered productive. Security, on the other hand, would be considered a non-productive expense. This does not mean it is not necessary, but rather not productive, ie it does not contribute to the bottom line. It is in times such as these that it would be wise to split out all your non-productive expenses and shop around to get better pricing. BUT…do not save the money, rather convert that cash into more productive expense. This ensures that, at the same cost structure, you become more aggressive. Remember, being aggressive is one of the best strategies for a downturn.

This motivational thought was provided by Allon Raiz of Raizcorp.

website : www.raizcorp.co.za

We were sent this by Sanlam COBALT and thought it was pertinent to share.

The current downturn in the economy affects all of us. As the saying goes, “When the going gets tough, the tough get going.” And that’s exactly the right strategy for tough times. Research has shown that most companies inadvertently become defensive in a recession. They cut costs, reduce staff, and sell off non-core assets. Not a bad strategy, just not the right strategy for a company that wants to go somewhere.

Most of the wealthiest men have built their fortunes, not in good times, but in bad ones. This is because they understood that the best time to attack was indeed when others were already retreating. In tough times, the best strategy is to become more aggressive in terms of market share. Double your efforts in sales, triple your efforts in terms of delivery. For when the market turns, and always does, then you will have gleaned significant market share. And in good times, it is the company with market share that wins.

Spend time now working on your sales and marketing strategies. Do not be conservative. Ensure you have a good value position- the best companies are better than their competition in at least three ways - but, most of all ensure you have the ability to deliver, and deliver well.

This motivational thought was provided by Allon Raiz of Raizcorp.
Website : www.raizcorp.co.za

The first questions most people ask about the Small Business Forum are “What makes this forum different from other networks?” and “What’s in it for me?”

As small business owners ourselves the number of early challenges we came across were too many to count. We have dealt with all kinds of clients from large international corporates to one man shows. So often as small business we tend to go after the big contracts; that tender or client that will put us on the map, only to find that those projects come with their own unique set of challenges – namely lack of resources and a lack of support.

When we refer to lack of support, we mean in the “people” sense. When working in larger organisations there was always someone to bounce an idea off; provide help on a large project; or just a friendly word to guide you on the right track. As a small business owner suddenly all these resources become a rare commodity.

We hope that what differentiates this forum from others is that common understanding of the daily, if not hourly, challenges faced by small business owners.

Experience has taught us that there is more than enough cake in most projects for everyone to have a slice – it is finding those appropriate partners and suppliers that is often the challenge. Where to go when you need to bounce ideas around; or to find a partner to help you get a project off the ground; or for the IT guy who can help you fix your email, hook up the printer and supply you with a four person network without having to re-bond the house.

To help answer all these questions the Small Business Forum was born, we hope to provide a platform for small business owners to truly interact and aid each other towards sustainability. Our aim is to create a network that is genuinely useful as oppose to an opportunity to just hand out 100 business cards.

Our website is our notice board for all things small business, please be sure to keep checking on our events and training calendars in order not to miss out. We hope that the diagram below will better explain all that the Small Business Forum has to offer. Some of it is already available and some aspects are a constant process of development.

Look forward to seeing you at our next event or training workshop, but in the interim please let us have your thoughts and comments. You can email us on info@small-business-forum.co.za.

Keep pioneering
The Small Business Forum

The most recent workshop hosted by the Small Business Forum “How to grow your business through SMS” with Dr Pieter Striecher from BulkSMS, was an informative and useful session that demonstrated the numerous benefits available to small businesses through the effective use of a common tool that we all use on a daily basis – the cellphone.

Now this might sound obvious, but so often we ignore the ‘obvious’ to attend to the ‘important’ – but what can be more important than growing our businesses? We get caught up in the day-to-day running of our business that rarely do we take the time to work on our businesses. The result is that we don’t move to action. We don’t actually get past the idea that something like SMS will help our business, and then apply it.

So, in my first Blog for the Small Business Forum I am going to take the time to investigate those characteristics of SMS that make it a valuable tool for any small business.

The top 5 most important features of SMS communication and SMS marketing, as promised by SMS providers in South Africa are:

1. It is cost effective. The SMS providers in South Africa are currently making it possible for you to send SMS via the web for as little as 21c per SMS. Of course that relays back to the amount of SMS credits you buy - the more you buy, the cheaper it gets. But when crunching the numbers, even 48c is extremely cost effective if you need to communicate with somebody.

2. It is instant, direct and fast. I don’t think I even need to go into why this will beneficial. Is that not what we want for all our communication efforts?

But since we are going through this exercise lets take a look at some examples:

• the need to inform your clients that their services will come to a halt if they do not pay their invoice on time;
• keeping clients up to date with process outcomes which affect project timelines;
• or as in our case, reminding members of an upcoming event (which we at the Small Business Forum will do every now and then )

3. It is 2- Way communication. Firstly it is important to explain to those who did not attend the event, that this SMS service is not managed from your own cellphone. You will not receive hundreds of SMS replies on your own handset.

SMS providers, like BulkSMS, created their applications to manage all communication coming back from the message sent. This is valuable, because you might just want to know that:

• your client appreciates the reminder to send her tax information; or
• you are sending your valuable information to the wrong number. It does happen and don’t for one moment think that these types of replies are pleasant. They never are. But since you are closely monitoring your subscription base, you remove the number and never send an SMS there again!

4. Viral Marketing Opportunities. The big question you have to ask yourself is if you would forward a great offer to everyone you know. Personally I would, if the deal is great. And a great deal can look something like this:

“Get a free SPA treatment. Bring this SMS along.”

If I received this offer, I would send it on to everyone I know. Just think of the knock on effect. What better way to get your product or service out there and feet through your door?

5. It works on all handsets. Since mobile advertising and marketing is making increased headway in South Africa and handsets are getting more sophisticated by the day, the fact that all phones can read an SMS is invaluable. You can be sure that whether someone has the latest new gadget or a simple call-and-answer phone, they will both get that SMS in readable format.

There you go, and this is really just the tip of the ice-berg. The fact that you can, for example, generate money using Premium SMS services I think deserves a whole Blog on its own. So until next time, keep on communicating effectively and economically.