Kindly provide the criteria that must be met in order for a taxpayer to qualify for Small Business Corporation (SBC) tax. There are two taxpayers who are in the Internet Solutions trade. The one company (Company A) sells and supplies ISP’s, whilst the o
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2020.
Answer:
Relevant tax law
Section 12E(4)(a)(iii) and (d) of the Income Tax Act dealing with the qualification criteria for an SBC:
“(iii) not more than 20 per cent of the total of all receipts and accruals (other than those of a capital nature) and all capital gains of the company, close corporation or co-operative consists collectively of investment income and income from the rendering of a personal service; (d) ‘personal service’…means any service in the field of…information technology…if-
(i) that service is performed personally by any person who holds an interest in that company…or by any person that is a connected person in relation to any person holding such an interest; and
(ii) that company does not throughout the year of assessment employee three or more full-time employees (other than any employee who is a holder of a share in that company…or who is a connected person in relation to a holder of a share in the company or a member), who are on a full-time basis engaged in the business of that company”.
Your client companies are both engaged in information technology, so they are conducting a personal service and do not qualify as SBCs, unless they escape under
(i) and
(ii). Note the “and” between
(i) and (
ii), which means that both requirements must apply.