Farmer’s Weekly – 02 August 2019

If we worked any closer with our farming clients

we’d be driving the tractor.

Santam is an authorised financial services provider (licence number 3416).

For more information, call your broker or visit http://www.santam.co.za/products/agriculture.

KINGJAMES 47799

TAX ADVICE

If your company is

struggling to trade itself

back to profitability and

enduring losses in the

process, keep careful

records to prove these

losses to SARS.

Trading your business

out of difficulty

S

outh Africa’s farmers operate in a

toxic business environment. They are

highly taxed, struggle to raise finance,

face input cost pressure, and endure lack of

security in terms of their land and assets.

How can you protect yourself as

a farmer? The first step is to have a

‘corporate shield’ between yourself

and this business environment.

Put another way, you should ensure

that active trading takes place in one

entity, a private company, with your

financial assets held at arm’s length,

away from risk of personal insolvency.

At times, however, even using a company

as a shield is not foolproof. When liabilities

are excessive, South African company law

holds that creditors might be able to hold top

management of the entity personally liable.

Great care should thus be taken to

record the fact that top management is

doing everything that could reasonably

be required to earn income, which, of

course, is required to pay creditors.

PROVE YOUR LOSSES

When there is an assessed loss, due

to a prolonged drought, for example,

the income of a subsequent year might

not be sufficient to fill the financial

vacuum of the loss-making year.

It might take several consecutive

good seasons to bring the business back

to profitability. The losses, however,

should be accurately recorded.

This is because when a loss is made,

there will probably be no tax to pay.

However, the tax authorities are

not always sympathetic; they might

want to disallow the losses.

For this reason, top management

should be especially careful to

keep note of all expenses.

Directors’ meetings should be held

regularly, carefully minuted and signed

off. This can assist in proving that top

management had every intention to ‘trade

out of difficulty’ and may also serve to prove

the loss in the face of a stringent tax audit.

If no trade takes place in consecutive years,

the company’s assessed losses might be

disallowed. This is a serious matter.

It is only right that losses made while

attempting to bring a company back

into the black should be allowed as tax

deductions. After all, tax is always payable

when profits are made, so losses should

be allowed when no profits are made.

If in doubt about creating your shield, seek

professional advice. Not to do so might well

prove to be the more expensive option.

▪

FW

TAX AUTHORITIES

ARE NOT ALWAYS

SYMPATHETIC; THEY

MIGHT WANT TO

DISALLOW THE LOSSES

2 AUGUST 2019 farmer’sweekly 27

BY PETER O’HALLORAN

Advocate Peter O’Halloran is
a tax specialist. Email him at
[email protected].
Subject line: Tax.