A higher number of people are looking to buy a franchise. Not only does this type of business opportunity enable them to leave the so-called rat-race, but many franchises are lucrative. Running one can be more rewarding than a corporate job.
The South African Revenue Service (SARS) issued a ruling in November 2017 which provided more clarity on the types of franchise fees that are tax deductible. In the past, there was a bit of confusion regarding whether the initial fee was tax deductible, which is why the new SARS ruling was made.
If you own a franchise or are looking into a franchise opportunity, then it’s important to note that the Binding Private Ruling 285 is the one that applies to you. In this ruling, you will get the guidance you need to determine which fees and payments are tax deductible.
Whether the initial franchise fee is tax deductible will depend on whether it is capital in nature or not. If it is capital in nature, then sections 11(gC) or 11(f) of the Income Tax Act, No. 58 of 1962 applies. Section 11(f) also stipulates that the ongoing fees to use the franchisor’s system (including branding and system property) are tax deductible.
As a South African looking for a franchise opportunity, it’s important to partner with a franchising company that can help you navigate everything from setting up your business to getting your accounting right. If you are looking to buy a digital marketing franchise, contact Unibit Solutions today.