The Sixth Schedule of the Income Tax Act details the workings of the turnover tax system applicable to micro-businesses. Turnover tax is an optional system (with preferential tax rates) and is essentially a simplified tax system that is available for micro-businesses (businesses with a qualifying turnover of R1 million or less). The Sixth Schedule deals with persons that qualify as micro-businesses (which does include natural persons), the permissible shares and interests that the micro-businesses may own, what constitutes taxable turnover and exclusions therefrom. Although the system has been widely used, there is an increasing number of taxpayers for who the system is no longer optimal, and who wish to deregister and be subject to the “normal tax system”.
In terms of paragraph 9 of the Sixth Schedule, there are two bases on which a person can be deregistered for turnover tax:
1.Voluntary deregistration
Voluntary deregistration occurs when the owner of a registered micro-business prefers to be taxed under the “normal tax system” and elects to deregister from the turnover tax system. A voluntary deregistration is permissible if the taxpayer submits a written notification to the Commissioner on or before the end of a year of assessment (28 or 29 February). Deregistration will be effective from the beginning of the following year of assessment. For example, a registered micro-business electing to be deregistered from the turnover tax system by submitting a notification to the Commissioner on 21 January 2019 will be deregistered with effect from 1 March 2019 (i.e. the 2020 tax year). There is currently no prescribed form that the notification should take on, and it is advised that taxpayers should visit their nearest SARS branch and submit a formal request to be deregistered (or approach your tax practitioner to assist).
2.Compulsory deregistration
Compulsory deregistration will take place if a registered micro-business no longer qualifies to be registered as such. Two factors may necessitate a compulsory deregistration, namely –
- the qualifying turnover derived by the micro-business from carrying on business activities during a year of assessment exceeds or is likely to exceed the R1 million threshold and the business cannot demonstrate that this will be a nominal and temporary event; or
- the person is disqualified based on the source of its turnover (for example professional services) or the investments that it holds.
A registered micro-business which is subject to compulsory deregistration must notify SARS within 21 days from the date on which it no longer qualifies as a micro-business. A failure to notify SARS may result in penalties being levied against the taxpayer.
Taxpayers must also remember that deregistration for turnover tax may have other administrative requirements that should be attended to, for example re-considering its VAT position, income tax position, provisional taxes and other compliance.
[1] No. 58 of 1962
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
