Does a registered trauma counselor also doing aptitude tests in a registered company on her own serving all different kinds of clients daily constitute a small business corporation for income tax or is she a personal service provider?
Important:
This answer is based on tax law year ending 28 February 2019.
Answer:
It is true that section 12E specifically requires that the “company is not a personal service provider as defined in the Fourth Schedule”. We noted that you made no reference to the fact that the company “does not throughout the year of assessment employ three or more full-time employees” and we accept that it doesn’t.
For purposes of the guidance that follows we accept that the only concern, in determining whether or not the entity qualifies as a small business corporation (see section 12E(4)) relates to the requirement in section 12E(4)(a)(iii) – “... not more than 20% of the total receipts and accruals ... consists ... of ... income from the rendering of a personal service ...”
With regard to the meaning of the term ‘personal service’, Judge Mbha made the following comments when the Tax court considered the last-mentioned definition:
“It is accepted generally that the meaning of words in a statute is derived from the common law. The basic rule of interpretation is that the meaning must, unless a statute provides otherwise, or unless it would result in an absurdity, be taken to be the ordinary meaning of the word which can be found in a dictionary of established authority.”
Note: SARS changed its Interpretation Note after this case.
SARS, in the practice generally prevailing, states the following:
“In general, a personal service refers to a service rendered for which the income derived is mainly a reward for the personal efforts or skills of an individual. In determining whether a service falls within the ambit of a “personal service” as defined, the ordinary grammatical meaning is given to each word in that definition. The words “any service in the field of” preceding the categories of services listed in the definition suggest that a wide interpretation must be applied to these categories. Therefore, the list must be interpreted to include every service in the specified field irrespective of whether it is of a professional nature.”
For ease of reference we copied the relevant parts of the definition of 'professional service' here.
It means a service in the field of … health, …
SARS, in an example in the note, state that “The services rendered by the dermatologists and pathologists fall within the “health” category listed in section 12E(4)(d).”
You must therefore decide whether the services rendered by the connected person in relation to the company, services rendered as ‘registered trama councelor also doing aptitude tests’ falls within the health category. If it doesn’t, the company would be a small business corporation.