A client would like to register for Turnover Tax. He receives rental income as a sole proprietor. He also receives a pension income that is taxable. Can he register for Turnover Tax for the rental income and does he have to then make two tax submissions?
Important:
This answer is based on tax law year ending 28 February 2018.
Answer:
Pension (or remuneration subject to employees’ tax in this instance), is not derived ‘from carrying on business activities’, as is required by paragraph 5 of the Sixth Schedule. It is therefore not subject to the turnover tax.
SARS, in their Tax Guide for Micro Businesses, explain in paragraph 2.12 that “micro businesses that render … services under employment-like conditions will not be allowed to access the turnover tax system.”
The individual will declare the pension in the ITR12 and declare the taxable turnover of the registered micro business in the TT forms. It is section 10(1)(zJ) that exempts from normal tax the amounts received by the person who is registered as a micro business. It is therefore declared as exempt income in the ITR12.
The contributions to retirement funds can only be deducted against taxable income – no deduction is allowed to a registered micro business. The medical tax credits are also only available to reduce tax payable that arises from taxable income. In other words, if the individual were only registered as a micro business, no deduction (of any kind) or rebate (not only medical), will be available.