Micro taxpayer

What it means

Micro taxpayer is a concept of the income tax act. It covers an individual with business or rental income, and a company whose taxable income, for a company its revenue, for the tax period does not exceed a statutory threshold.

The status is not granted on application or registration; it is assessed afresh every year on actual income. A company in liquidation or bankruptcy, for example, cannot be a micro taxpayer, nor can a taxpayer belonging to certain groups. Whoever exceeds the threshold loses the status the following year.

The benefits fall into two groups. The first is a reduced rate under the current income tax rates; the second is simpler rules: more flexible use of tax depreciation and deduction of a tax loss without the cap of half the tax base.

How it works in practice

When preparing the tax return we first check whether the client meets the conditions for that year. For sole traders we add up business and rental income, for companies all revenue, not just sales. Borderline cases are dealt with before year end, while the timing of invoices can still be influenced.

The difference is noticeable when carrying losses forward: an ordinary taxpayer may deduct a loss only up to half of the tax base, while a micro taxpayer can deduct it in full. On depreciation, a micro taxpayer may claim a lower amount or suspend it when that suits it better for tax.

The reduced rate and micro taxpayer status are not quite the same thing: the thresholds for the reduced rate have changed in recent years and need not match the micro taxpayer threshold. In planning we therefore calculate the two separately so the client knows exactly what they gain.

What to watch out for

Splitting a business artificially into several companies just to keep each below the threshold may be treated by the tax office as abuse under the general anti-abuse rule, and the benefits withdrawn retroactively. A split must have a genuine economic reason.

When a company moves from micro taxpayer status back to the ordinary regime, it must not forget the cap on loss deduction and the standard depreciation rules. The mistake easily carries into tax advances and surfaces only during an audit.