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5 Best Tax Reduction Strategies For Brick and Mortar Businesses In South Africa
1. Leveraging Section 12B: Accelerated Depreciation for Machinery and Equipment
What is it?
This allows businesses to write off the full cost of qualifying machinery and equipment used for business purposes over a short period, rather than spreading it out over years. It’s like a turbocharged tax break that rewards businesses for reinvesting in their operations.
Analogy:
Think of this like upgrading your shop’s generator when load shedding hits. Instead of paying for the generator in installments over five years, you can “claim back” the cost in a year or two when it comes to your taxes. The quicker you claim, the faster you get relief.
Teach Concept:
Under Section 12B, if you purchase equipment that directly supports your brick-and-mortar business operations—such as refrigeration units for a butcher or industrial ovens for a bakery—you can write off the entire cost in a fraction of the time. This reduces your taxable income significantly in the short term, which means paying less tax. For businesses in South Africa grappling with cash flow challenges, this can be a huge boost.
Example:
A restaurant in Cape Town invests R500,000 in new kitchen equipment. Normally, this would be deducted over several years. With Section 12B, the entire R500,000 can be written off in the first year or two, drastically reducing taxable income and saving R150,000 or more in taxes (assuming a 30% tax rate).
2. Claiming Home Office Expenses (For Business Admin Done From Home)
What is it?
If you’re running part of your brick-and-mortar operations, like admin or bookkeeping, from a dedicated home office, you can claim a portion of your home expenses (electricity, rates, internet) against your business income.
Analogy:
It’s like running your back office from your storeroom, except this time it’s in your home. Since that space works for your business, SARS recognizes it and lets you claim part of the costs as business expenses.
Teach Concept:
If you, as the owner, manage stock orders, payroll, or marketing from a dedicated home space, you can allocate a percentage of your home’s expenses for tax purposes. The key here is dedicated space—a corner of your living room doesn’t count, but a spare bedroom set up as an office does. This strategy reduces your taxable income by factoring in personal costs as business-related.
Example:
A Durban florist spends three hours a day doing invoicing and planning from a study at home. The study takes up 10% of their home’s floor area. If the total household expenses (electricity, water, rates, etc.) amount to R120,000 a year, they can claim R12,000 as a business expense.
3. Employing Family Members Strategically
What is it?
Paying family members for genuinely contributing to your business can reduce your overall taxable profit, provided their salaries are reasonable and tied to actual work.
Analogy:
Imagine letting your teenager help with the Saturday morning rush at your corner café and paying them from the business account. It’s like hiring extra help, but now SARS recognizes the wages as a legitimate business expense.
Teach Concept:
If your spouse or adult child helps with bookkeeping, deliveries, or customer service, paying them through the business is legitimate—as long as it’s for real work. The salary becomes a deductible business expense, which means the amount you pay reduces your taxable income. However, avoid overpaying or creating fake roles—SARS keeps a sharp eye on abuse.
Example:
A hardware store owner in Johannesburg hires their spouse to handle inventory management part-time and pays them R10,000 monthly. Over a year, that R120,000 is deducted as a business expense, potentially saving the owner R36,000 in taxes.
4. Taking Advantage of Section 12L: Energy Efficiency Savings
What is it?
This incentive rewards businesses that invest in reducing their energy consumption by allowing them to claim deductions based on the amount of energy saved.
Analogy:
Imagine switching out your store’s old neon signage for energy-efficient LED lights. Not only do you save on your electricity bill, but you also get a tax break for going green—two wins for one upgrade.
Teach Concept:
Section 12L encourages you to reduce energy consumption, which is especially valuable given South Africa’s energy crisis. The tax deduction is calculated based on measurable energy savings. This means if you’ve made any upgrades or operational changes that reduce electricity use—like installing solar panels—you may qualify for this deduction.
Example:
A clothing retailer in Pretoria invests R300,000 in a solar installation for their store and reduces their electricity consumption by 30%. Through Section 12L, they claim a deduction equivalent to the energy saved, potentially saving tens of thousands in taxes while slashing their utility bills.
5. Optimizing Your VAT Inputs
What is it?
When you charge VAT on your sales, you’re entitled to claim back the VAT you’ve paid on business expenses. But many brick-and-mortar owners miss opportunities to maximize these VAT inputs.
Analogy:
Think of VAT like getting discounts from your suppliers. You’re already paying it, so you might as well claim it back properly instead of leaving money on the table.
Teach Concept:
Ensure every eligible purchase—tools, cleaning supplies, rent, even maintenance services—has a proper VAT invoice. Keep thorough records, as SARS only allows claims with correct documentation. It’s also crucial to differentiate between VATable expenses and those that aren’t (e.g., staff wages).
Example:
A hair salon in Port Elizabeth spends R20,000 monthly on stock (shampoo, hair dye) and cleaning services, all VAT-inclusive. By claiming back the VAT of R3,000 (15% of R20,000), they effectively reduce their costs, saving R36,000 annually.
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10 Best Tax Reduction Strategies For Brick and Mortar Businesses In South Africa
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