Category: Tax

“A small business is an amazing way to serve and leave an impact on the world you live in.” (Nicole Snow)

Small business owners looking to sell their business or interest in a business as part of their retirement planning will be glad to know that meaningful tax relief has been provided for them in the 2026 National Budget.

Among other measures to support businesses, National Treasury raised the capital gains tax exemption for the sale of a small business for older persons (55+) from R1.8 million to R2.7 million, a long-overdue adjustment for inflation and rising asset values.

The higher exemption also applies to more businesses than it did before. Where small businesses used to be defined as those valued at R10 million or less, the limit has been increased to R15 million.

Do I qualify?

First check if you meet the bare minimum requirements:

• The exemption applies to individuals aged 55 or older.
• The exemption applies when disposing of a small business with a market value not exceeding R15 million.
• The market value of all assets, regardless of their nature, must be considered in determining whether the R15 million threshold is exceeded or not.
• Liabilities of the business are ignored for this determination.
• For partnerships or companies, the R15 million threshold applies to the total assets of the business, not each partner or shareholder’s fractional interest. This means a two-partner business with R20 million in assets will not qualify, even if each partner’s share is only R10 million.
• The lifetime CGT exemption is capped at R2.7 million in total across all disposals.
• Each asset must have been held continuously for at least 5 years prior to disposal and the individual that qualifies for the relief had been substantially involved in the operations of the business of that small business during this period.
• The relief must be determined on an asset-by-asset basis.

Given the complexity of this determination and SARS’ requirement that relief must be determined on an asset-by-asset basis, professional tax assistance is highly recommended.

How could it benefit you?

Many small business owners rely on the eventual sale of their business as their primary retirement asset.

This tax relief can support succession planning, intergenerational transfers, and smart business exits, particularly for family-owned businesses. It encourages the sale of businesses, effectively unlocking capital and allowing for business continuity or reinvestment into the economy. 

Of course, the additional tax-free capital gain will also meaningfully boost your retirement security after years of building a business.

If you’re considering retiring or selling soon, it’s worth reviewing your timing with a tax advisor. We can assist you in reviewing your business valuation, assessing your CGT exposure and structure and timing your exit correctly to make the most of this meaningful tax exemption.

Disclaimer: The information provided herein should not be used or relied on 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 us for specific and detailed advice.

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“As your profitability grows, your taxes will too. In fact, paying more taxes is an indicator that your business health is improving.” (Mike Michalowicz)

Business owners work hard to grow revenue and increase profit. What often receives less attention is how that growth alters your tax obligations. Higher turnover can trigger VAT registration. Rising profit increases provisional tax exposure. Hiring staff adds payroll compliance risk. Expansion across borders introduces new tax jurisdictions. Even improved margins can create cash flow pressure when tax payments are due before debtors settle their accounts.

Crossing the VAT threshold

In South Africa, once your taxable supplies exceed the compulsory registration threshold (recently increased from R1 million per year to R2.3 million per year), you must register for VAT. Many businesses grow quickly and miss the moment they cross it. This simple mistake can trigger penalties, interest, and backdated VAT.

Cash flow can become a second issue. You collect VAT on sales, but input VAT claims lag if suppliers don’t issue proper invoices. If you price incorrectly, you may end up funding VAT from your own margin. You might even have to pay output VAT on sales before you have received payment from your debtors.

Growth often means higher transaction volume as well. That increases the risk of errors in VAT coding, zero-rated supplies, and mixed-use expenses. It’s easy to see how a small bookkeeping mistake can easily become a material tax exposure.

Of course, there can also be benefits to registering for VAT, not least the potential right to claim input VAT on certain assets that have been purchased before you registered for VAT, and that are now used to make taxable supplies. VAT must however have been charged at the time of purchase. This can provide a nice inflow of cash, if handled correctly. Bottom line: speak to your accountant!

Provisional tax shocks

When profit rises, so does income tax. Owners often draw more cash as profits rise. They forget that tax on those profits has not yet been paid, and by the time the assessment arrives, the money is gone.

Provisional tax can be particularly problematic. Estimates based on last year’s lower profits lead to underpayment penalties when actual results are filed. Rapid growth can produce a large balancing payment in the second provisional period, or at year end.

Payroll expansion and compliance risk

Hiring staff is a sign of progress. It also triggers pay-as-you-earn (PAYE), unemployment insurance fund (UIF), and skills development levy (SDL) obligations. Errors in payroll setup multiply as your headcount increases. If payroll software isn’t configured correctly, you can under-deduct PAYE. Add penalties and interest, and growth in staff numbers can become a financial setback.

Share incentive schemes and other fringe benefits introduce potential tax complications. Without guidance, these benefits can be structured in ways that create unexpected tax costs for both employer and employee.

Operating across borders

Sometimes growth means selling beyond South Africa’s borders. Cross-border trade brings customs duties, foreign VAT, transfer pricing, and double taxation agreements into play.

A small e-commerce business that starts shipping internationally may create a permanent establishment in another jurisdiction without even realising it. That can expose them to foreign corporate tax. Currency gains and losses add volatility. If not monitored carefully, taxable income can rise even when cash flow does not.

Structural strains

The structure that worked at start-up may not suit a larger business. A sole proprietorship with modest turnover may be efficient. The same structure with higher profit can push you into a steeper marginal tax bracket.

When investors buy into new structures, share issues and valuations may raise capital gains tax and income tax questions if roll-over relief is not available. Growth may also expose structural weaknesses. Dividends tax and loans between shareholders and companies can create further tax considerations.

Capital expenditure and allowances

Expanding operations usually requires additional equipment, vehicles, or property. Tax deductions for capital assets now need to be considered. Meanwhile, disposal of older equipment may trigger recoupments or capital gains taxes. A growing business that upgrades assets frequently should definitely model the tax impact of these upgrades before committing.

Cash flow versus profit

Rapid growth often ties cash up in stock and debtors. Profit on paper doesn’t mean cash in the bank. Tax is calculated on taxable income, not on what clients have paid. What this all means is that a business can show strong profit, and owe tax on that profit, but still struggle to pay tax because of cash flow issues. Cash flow forecasting must include tax forecasting.

Audit risk

As turnover grows, so does visibility. Larger payrolls, higher VAT submissions, and bigger provisional payments attract scrutiny. Inaccurate returns that went unnoticed at a small scale can become costly when the numbers are larger.

Internal controls that were informal at start-up stage now need formal processes. Documentation matters. Contracts, invoices, and board resolutions must support your tax position. Without them, assessments become difficult to dispute.

Planning for growth, not reacting to it

Growth doesn’t create tax problems on its own. Lack of planning does.

Review your tax registrations before revenue spikes, update provisional tax estimates during the year, and align owner withdrawals with after-tax profit, not turnover. It’s also important that you reassess your entity structure as profit bands change, and model the tax impact of hiring, investing, or expanding offshore before you act.

Growth is a good problem to have. But it is still a problem if ignored. Engage your accountant early in the growth phase, not after the assessment arrives.

Disclaimer: The information provided herein should not be used or relied on 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 us for specific and detailed advice.

© AccountingDotNews