Section 12 E of the Income Tax Act offers relief to SBCs – plant and machinery is written off in the year of purchase, other assets (such as furniture and equipment) are written off in three years and SBCs only pay tax of R24,580 on their first R300,000 of taxable income. MBs pay tax on turnover where the turnover does not exceed R1 million. The tax is on a sliding scale and at R1 million turnover, R39 250 is payable to SARS. Thus, both SBCs and MBs get substantial tax benefits.

An example best illustrates the tax differences. Assume there is a normal company (for tax reasons), an SBC and an MB. Assume each has R1 million in gross income and each bought plant and machinery for R200,000 (they are all involved in manufacture) and furniture for R100,000. Their tax calculations will look as follows:


















As you can see the SBC is R102,353 better off than a normal company and the MB is R213,683 better off than a normal company. It is also worth noting that MBs are only taxed on turnover and thus if an MB has substantial costs, it may not be worth becoming an MB.

The problem

There are requirements to qualify as an SBC or an MB. One of the most significant being that income from “personal services” has to be less than 20% of the entity’s revenue for SBCs and 10% for MBs.

SARS considers “personal services” as a specific occupation (lawyer, auditor, architect etc) or involved in consulting, broking or management.  The latter three words are very broad in meaning and have scared off many businesses who may qualify as SBCs or MBs.

Recently a taxpayer took SARS to court over the definition of “personal services”.

What happened?

The taxpayer provided marketing services to clients.  On behalf of his principal, he negotiated discounts, promotions and listed products in chain stores like Shoprite and PicknPay.  From time to time, he also gave advice to his principals. SARS maintained this came within the ambit of consulting, broking or management and thus rejected the contention that he should be treated as an SBC. 

But the Court differed 

The judgment defined “consulting, broking and management”. Using common law principles (the words are to be used in their literal context), the judge used the dictionary to define the words. Thus, management is “the activity or skill of directing and controlling the work of a company or organisation …” As the taxpayer works for other entities, this does not apply. Broking is “the business or service of buying and selling goods or assets for others….” Clearly broking cannot be considered either.

Consulting is more difficult to define and the judge used two concepts to arrive at this. Firstly, what was the intention of the legislation – in an interpretation note SARS refers to the law as “being not intended to benefit any professional person such as an architect or a lawyer…”  Secondly, the judge said the word “consulting” should be considered in the context of the words around it – words like “auditor” or “lawyer” which meant a professional belonging to a professional body.  The taxpayer did not belong to a professional body and could thus be said not to be a consultant in terms of the definition of the Act. The judge found in favour of the taxpayer and in addition ordered SARS to pay costs. 

What can we take away?

If you have been discouraged from claiming to be an SBC or applying to be an MB because of SARS’ interpretation of “personal services”, look at the services you provide and see if you may qualify as an SBC or MB – speak to your accountant if in doubt. Secondly, if you get a ruling from SARS, check it critically. In the case above, the judgment was worth challenging. Use your common sense and judgment and if you are not satisfied, appeal the SARS finding.

© CA(SA)DotNews is a general information sheet and 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 your financial adviser for specific and detailed advice.





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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.


Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.


Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.


Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.