May a medical practice trading as an incorporated company register as a SBC?
Important:
This answer is based on tax law year ending 28 February 2018.
Answer:
There are some tax related issues, but whether or not the individual should incorporate is not really a tax related question. The question is best addressed to the taxpayer’s professional body as certain specialist medical practices may or may not be done through a personal liability company. The following two definitions in the ethical rules of conduct for practitioners registered under the Health Professions Act, 1974 is relevant:
“practitioner” means a person registered as such under the Act and, in the application of rules 5, 6 and 9 of these rules, also a juristic person exempted from registration in terms of section 54A of the Act;
“private practice” means the practice of a health practitioner who practises for his or her own account, either in solus practice, or as a partner in a partnership, or as an associate in an association with other practitioners, or as a director of a company established in terms of section 54A of the Act;
Section 54A is found in the Health Professions Act, 1974.
From an Income Tax Act perspective, you are correct that section 12E(4)(d) is relevant. For the purposes of this section “personal service”, in relation to a company … means any service in the field of … health, … if—
(i) that service is performed personally by any person who holds an interest in that company, co-operative or close corporation or by any person that is a connected person in relation to any person holding such an interest; and
(ii) that company, co-operative or close corporation does not throughout the year of assessment employ three or more full-time employees (other than any employee who is a holder of a share in the company or a member of the co-operative or close corporation, as the case may be, 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, co-operative or close corporation of rendering that service.
The connected person part in (i) was added during December 2017.