Corporate Tax and the Limitation Rule
Understanding the shift in Corporate Income Tax (CIT) rates and the new rules governing assessed losses.
Corporate Income Tax (CIT) Update
Resident companies are taxed on worldwide income, while non-residents are taxed on South African-source income. A key shift occurred for years of assessment ending on or after 31 March 2023:
- 📉 Standard CIT Rate: Reduced from 28% to 27%.
- 🏢 SBCs: Small Business Corporations also benefit from adjusted progressive tax brackets.
SBC Tax Rates (Ending on/after 31 March 2023)
| Taxable Income (R) | Rate of Tax (R) |
|---|---|
| 1 – 91,250 | 0% |
| 91,251 – 365,000 | 7% of income above 91,250 |
| 365,001 – 550,000 | 19,163 + 21% of income above 365,000 |
| 550,001 and above | 58,013 + 27% of income above 550,000 |
The Limitation Rules
The reduction in the tax rate is offset by stricter rules on how losses and interest can be deducted:
- Assessed Loss Limitation: Claims are limited to 80% of taxable income.
- Cross-border Interest: Deductions are limited to 30% of “tax EBITDA”.
Assessed Losses: A Practical Example
Effective from 1 April 2022, you can no longer “wipe out” your entire tax liability using carried-forward losses if you have a taxable profit.
Scenario: Taxable Income of R2,000,000 with a carried-forward loss of R5,000,000.
- ✅ Allowable Deduction: R2,000,000 × 80% = R1,600,000
- ⚠️ Taxable Balance: R400,000 (The remaining 20%)
- 💸 Tax Payable: R400,000 × 27% = R108,000
Note: This impacts provisional tax and cash flow, as companies must pay tax even while significant losses remain on the books.
Is your business prepared for the 80% limitation impact on cash flow?
Created by: Renate Jute, CFP® | Registered Tax Practitioner™
Director, Noble Prosperity
