The shareholder-, buy and sell agreement and MOI in your business

The shareholder-, buy and sell agreement and MOI in your business should cover all the taxation aspects of Income Tax, Capital Gains Tax, Donations Tax and Estate Duty, upon the departure any one or more owner[s] / shareholder[s].

It is imperitive that the buy and sell agreement is structured and aligned with the Shareholders Agreement and the Memorandum Of Incorporation of the company, in order provide the most tax efficient solution possible.

A correctly structured buy and sell agreement will ensure that Income Tax, Estate Duty, Capital Gains Tax and Donations Tax implications are either:

  • Avoided entirely
  • Reduced to manageable and acceptable levels
  • Funded through tax efficient structures and mechanisms.

From an income tax perspective you need to consider Section 11(w) and all its implications. Although there are choices and decisions that can be made here, in very simple layman’s terms, if the premiums were deducted for income tax purposes by the company, then the proceeds of any life insurance policies paid to the company, will be taxable.

For the most part, Estate Duty is not a concern if life insurance is used to pay for the share transfer between owners / shareholders, assuming that the departing owner / shareholder is a natural person. There is an unusual anomaly to this, insofar as a company, which is a shareholder, is defined as a person by the Interpretation Act, Act No 33 of 1957 and so it is possible to maintain Estate Duty free payments to shareholder companies. Trusts on the hand do not enjoy the same exemption. There are nevertheless corporate structuring techniques available with a combination of trusts and companies, whereby Estate Duty benefits could still be obtained.

At any stage that the payment for the owner’s interest or shareholding exceeds the base cost of the interest / shares, there will be a capital gain and capital gains tax will ensue. Similarly, there could be a capital loss, which will not be deductible for tax purposes. It is vitally important that an acceptable valuation method is adopted and adopted in all relevant agreements and the MOI of the company, to avoid excessive CGT [capital gains tax] being raised by SARS.

Donations tax could arise if the payment for the ownership interest / shareholding is substantially less than a fair market value thereof. This is also why one needs to define the share valuation method in an acceptable manner and structure to SARS. If insufficient consideration is given to this aspect, you could find yourself in the unenviable position of incurring both Donations and Capital Gains Tax upon the transfer of ownership.

Tax Consequences of Pension/Provident fund withdrawals at resignation

Tax Consequences of Pension/Provident fund withdrawals at resignation

Most of us will experience the process of resigning from an employer at some stage of our lives and, if you are lucky enough to receive a pension, you will be left with an important choice to make at that point.

I would like to share, in simple terms, the different tax implications when someone opts to take a 100% cash withdrawal at the point of resignation (before retirement age) or transfer their Pension fund to an approved Preservation Fund.

To understand the tax implication, there are three important aspects we need to understand:

The difference between Pre-Retirement and Retirement

  • Retirement, in normal circumstances, is allowed at the age of 55 or older
  • Pre-retirement, in normal circumstances, is before the age of 55

The difference between how Lump Sum or Pension Benefits will be taxed pre-retirement (Withdrawal Benefits Table)
and at retirement (Retirement Benefits Table), please see below:

Taxable Lump Sum Rate of Tax
0 – R25 000 0% of taxable income
R25 001 – R660 000 18% of taxable income above R25 000
R660 001 – R990 000 R114 300 + 27% of taxable income above R660 000
R990 001 and above R203 400 + 36% of taxable income above R990 000
Taxable Lump Sum Rate of Tax
0 – R500 000 0% of taxable income
R500 001 – R700 000 18% of taxable income above R500 000
R700 001 – R1 050 000 R36 000 + 27% of taxable income above R700 000
R1 050 001 and above R130 500+ 36% of taxable income above R1050 000

By simply looking at these tables, you will already have noticed the difference between the portions taxed at 0%:

R0 – R25 000 – Withdrawal Benefits Table

R0 – R500 000 – Retirement Benefits Table

The options available at resignation to the Taxpayer:

  1. Receive a cash lump sum
  2. Transfer the pension benefit to an approved Preservation fund (Pension Preservation of Provident Preservation) or Retirement annuity.
  3. Choose a combination of the two options (Excl. GEPF)

Buy March Sell November

Today we discuss another solution to our aim of increasing our money twice as much each year.

In order to double your money, you will have to make some effort in planning and engage in action with some marketing and sales skills.

Buying in March and selling in November is another way you can double your money, or some of your money.

The idée is to buy an asset at half price and trade it at double the price or market value. This might seems exuberant at first but there are many products and assets you can purchase at half price.

The secret is to buy when people are eager to sell and sell when people are eager to buy. In March people are seriously recovering from their realities of December/January holidays and money are in short supply.

The flip of the coin happens at the end of the year when excitement and bonuses drive sales, but of course you can advertise anytime.

There are various assets and will depend on your personal skills.

You can consider buying from online adverts to auctions and wholesalers.

The following is a short list of ideas you can consider:

  • Books
  • Tickets
  • Bicycles
  • Cars
  • Watches
  • Property
  • Holiday Accommodation

Investing your money in the bank for 7% growth to keep up with inflation is the minimum and without much risk, however if you acquire some skills and are willing to risk some of your money, you can in fact double your money.

Take note that you should consider the amount of money you are willing to risk vs your skills and time. Take your time and start small. Greed is one of the largest reasons people loose moeny.

This is my third post on how you can double your money. Let us know your ideas on how you would be able to double your money?

Double Up 20 X 4 rule

So we discussed the sweet potato way to double your money, but today we would like to introduce one more way to double your money every year.

We call it the Double Up 20 X 4 rule, because you can buy at wholesale and sell at a netto profit of 20% every 3 months and double your money.

Let’s say you buy one of the listed items below at wholesale or at a discount from private people and sell it online in small adverts or auction shops.

You purchase, or laybuy R1000 worth of goods at a discount. Selling the item/s for R1200. Then you buy for R1200 at discounted rates and sell for R1440. Continue this process 4 times and you just doubled your money!

Okay, so that example will not make you the richest man in the world, but use the principle and see how much money you can make in 10 years.

Some good items to consider selling from home:

Kitchen gadgets
A purse in good condition
Video games or gaming systems
Old phones or charging stations
Kids clothing
Sports equipment
Blue jeans
Large children’s toys / equipment
Bike or scooter
Baby gear

Even better if you can get buyers before you buy the products, but if you don’t buy a product you would need to be commited in selling something you do not have yet.

Let us know your ideas of how to double your money every year.

Financial Sweet Potato

double your money

You may have thought it impossible to double your money every year and you may be right, however you will find it possible to double some of your money every year.

Every summer grows a root with one of the highest vitamin C of edible foods, the sweet potato. I took a sweet potato and grew a few stems on my table.

At the time I was letting my mind go to an idee of doubling my money every year. It occur to me that the simple sweet potato yields much greater than just one or two.

I already had a sweet potato that started growing little stems in a dark corner, so I planted the sweet potato in a bucket mixed with sand and grass. Needless to say, after a few months of nurturing my yield was amazing.

My five bucks sweet potato yielded 10X. The time it took me to plant and water was simply time I would have spend in leasure and researching a few youtube growing methods was also fun.

Can you double your R500 000k every year? The answer is:” It’s up to you”

We will cover a few more ways, but looking forward to your idees.