Incentives for small business corporations: Company qualifying criteria in South Africa and Australia

MCom (South African and International Taxation), North-West University, Potchefstroom Campus, 2018South Africa is a country facing numerous economic and other challenges, such as high rates of unemployment and rampant inequality. One solution to these challenges is to ensure that South Africa has a growing and vibrant economy, capable of creating sustainable jobs that address the systemic inequality in the country. Small businesses can play a vital role in the future of the South African economy, as they are the engines powering growth, job creation and innovation. Small businesses should, therefore, be assisted as far as possible - the use of small business tax incentives can be viewed as a form of assistance. These small business tax incentives can be the “turbo fuel" used to kick-start small businesses and power up the South African economy. Currently, South Africa provides small businesses with tax incentives in the form of Section 12E of the Income Tax Act (58 of 1962). Entities that meet the definition of a “small business corporation" in terms of this section, are provided with tax relief in the form of reduced corporate tax rates and accelerated wear and tear allowances. This relief is, however, often criticised for being overly onerous and complex. Other countries also offer small businesses tax relief as a form of assistance. One such country is Australia where small businesses that meet the definition of a “small business entity" - per Australian tax legislation - qualify for tax relief in the form of reduced corporate tax rates and preferential wear and tear rules. Previous studies have noted that South African small business tax legislation can learn from Australian legislation on how to standardise and expand small business tax relief. The purpose of this study was, therefore, to perform firstly an in-depth analysis of both the South African small business corporation and Australian small business entity tax relief. A critical comparison was secondly performed in order to identify the shortcomings of the South African small business corporation qualifying criteria and tax relief when compared to the Australian small business entity qualifying criteria and concessions. Recommendations were made in this study on how to possibly improve or enhance the South African small business tax relief, specifically with regard to Section 12E. This study was, therefore, performed through a detailed literature review of previous research concerning the respective small business tax concessions of South Africa and Australia. This research methodology was a post-structural or doctrinal research design. The study found several shortcomings in the South African small business corporation eligibility criteria and tax concessions when compared with the Australian small business entity system, including the fact that the anti-avoidance measures in Section 12E are overly onerous and that South African small business tax incentives ensure a mismatch between providing relief to incorporated and unincorporated small businesses. Moreover, it was noted that the form of corporate tax relief in South African tax legislation is narrow when compared to the Australian system. Several recommendations were made on how to possibly improve Section 12E tax relief, especially in terms of the aforementioned shortcomings. Recommendations were also made with regard to future areas of research that can even further improve Section 12E tax relief. The value this study created was, therefore, to assist Section 12E tax relief in becoming as effective as possible - adding a bit more turbo to the fuel needed to power small businesses in South Africa.Master