Article by: Garsfontein Accountant: Nardus Venter
As an entrepreneur, when you finally get paid, you want to ensure that you get the most amount of cash in your bank account
The options open to entrepreneurs are:
Paying out all their profits as Salary and then paying over PAYE on this amount, or
Paying out all their profits as Dividends and then paying Income Tax and Dividends Tax on this amount
A mixture of both Salary and Dividends
So…how can you do this?
The first step is to ensure your business qualifies as a small business corporation (SBC) as this still allows for a little breathing room when it comes to tax planning. See our blog here: Small Business Corporations Tax – What is it? Do you qualify? (sme.tax), to find out if you qualify as an SBC.
Because, of the sliding Income Tax scale used for Small Business Corporations, you have an opportunity to use a mix of Salary and Dividends to ensure a maximum amount of net income lands in your bank account.
How, may you ask?
The table below illustrates the different outcomes on R1 731 601 million profit and shows that being an SBC is still clearly the best option.
| Income Type | PAYE | SBC Tax | Co Tax | Div. Tax | Total Paid |
|---|---|---|---|---|---|
| All Salary | R614 192 | 0 | 0 | 0 | R614 192 |
| SBC Mix Sal/Tax/Div | R388 692 | R58 013 | 0 | R98 398 | R545 103 |
| SBC All Dividend | 0 | R58 013 | R319 032 | R270 911 | R647 956 |
| Co. All Dividend | 0 | 0 | R467 532 | R252 814 | R720 346 |
At SME.TAX we do more than just assist clients with tax planning, we are your “one-stop SME shop”, assisting with everything from Accounting, Business Management, BEE, Consulting and Company Registration to Payroll and Mentoring.
For more information, please visit www.sme.tax or give us a call on 012 021 0829.
