You will probably wonder why the Receiver wants to know if you are a
director of a company or a member of a close corporation (CC). This
question is in part 14.6 of your tax return.
It also asks whether your minor child is a director/member of that
company/CC but the reasons why a minor child is included were covered in
the past two weeks or so.
This question is mainly intended for directors of private companies and
close corporations (normally also being shareholders of those
companies/members of those CCs) because they normally do not account for
the financial affairs of their companies to a broad number of shareholders
but substantially to themselves. Note that a close corporation is regarded
as a private company in tax law.
Directors of private companies and members of close corporations do not
have to pay employees tax every month, in other words they pay tax from
their salaries only twice a year (as they are automatically classified as
provisional taxpayers) whereas everybody else has tax deducted from their
monthly salaries. It is therefore partly for this reason that you have to
say whether or not you are a director/member. So, make sure that you are
registered as a provisional taxpayer before you answer ``yes`` to that
question.
The other important reason why this question is important to the Receiver
is that normally directors/ members of close corporations give themselves
generous loans from their companies/close corporations. They could also
give someone else those loans and derive an indirect benefit. If you, as a
director/member, have received a loan that has favourable terms that you
would not ordinarily have received elsewhere, there would be possible tax
consequences that could arise.
You would have to disclose such loans from your company or CC in Part 18
anyway - although you might have thought that these loans which you
received were not ``taxable``.
Firstly, the company/CC will have to pay 12,5 percent (secondary tax on
companies) of the amount loaned to you if there is no intention to repay
that loan and it bears non-market related (ie low) interest rates to you
and the loan is not remuneration.
Secondly, the fact that the loan does not bear interest, or it bears
interest which is lower than the interest rates you would normally get from
banks, will attract tax on this fringe benefit (which we covered earlier).
Thirdly, you have to complete part 18 of the tax return - because the
Receiver wants to reconcile your financial status from one year to the next
- mainly because of the likely high numbers involved.