Close Corporation Taxation and Business Planning

Close corporations can be taxed in a variety of ways, including through the use of a tax-free dividend allowance. This is particularly useful for small business owners who want to minimize their tax liability.

Tax-free dividend allowances can be especially beneficial for close corporations with a small number of shareholders. By taking advantage of this allowance, these businesses can reduce their tax burden and retain more of their profits.

A close corporation's tax status can also be influenced by the number of shareholders it has. For example, a close corporation with a small number of shareholders may be eligible for a tax-free dividend allowance, while a larger corporation may be subject to different tax rules.

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For tax purposes, a close corporation is dealt with as if it's a company. This means that a CC must register as a taxpayer in its own right.

As a CC has no share capital, it doesn't have shareholders, but rather members who have a membership interest in the CC, expressed as a percentage. Membership is restricted to natural persons or a trustee of an inter vivos trust or testamentary trust.

One important tax liability to be aware of is that every member and person who performs functions similar to a director of a company and/or who controls or is regularly involved in the management of the CC's overall financial affairs, will be personally liable for certain taxes, such as employees' tax, value-added tax, additional tax, penalty, or interest, if these taxes are not paid to SARS within the prescribed period.

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A company that sells its assets may recognize a taxable gain or loss, depending on the difference between the sales price and the tax basis of the assets.

The tax basis of an asset is the cost of the asset that has not yet been depreciated, and it's calculated by subtracting accumulated tax depreciation from the initial purchase price.

If a company sells an asset for more than its tax basis, it will recognize a taxable gain and must pay tax on the sale.

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For example, if a company sells an asset for $100,000 that was purchased for $150,000 and has received tax deductions for depreciation totaling $80,000, the tax basis will be $70,000.

The company will recognize a taxable gain of $30,000, which is the difference between the sales price and the tax basis, and it will owe $6,300 in taxes if its tax rate is 21%.

As of 1 May 2011, no new close corporations can be registered or converted from a company to a close corporation.

A close corporation, or CC, has its own legal personality and perpetual succession, making it a separate entity from its owners. It must register as a taxpayer in its own right, similar to a company.

The owners of a CC are its members, who have a membership interest expressed as a percentage. Membership is restricted to natural persons or a trustee of an inter vivos trust or testamentary trust.

The minimum number of members is one and the maximum is 10. A CC may not have an interest in another CC.

Here are some key advantages and disadvantages of a CC:

A Close Corporation is a type of business structure that's relatively easy to establish and operate.

As of 1 May 2011, no new Close Corporations can be registered or converted from a company to a Close Corporation.

A Close Corporation has its own legal personality and perpetual succession, and must register as a taxpayer in its own right. This means it's a separate entity from its owners.

The owners of a Close Corporation are the members, who have a membership interest expressed as a percentage. Membership is restricted to natural persons or a trustee of an inter vivos trust or testamentary trust.

Here are some key characteristics of a Close Corporation: