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Allowable deductions for a commission earner

15 October 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author:  SAIT Technical

Q: My client earns a salary of R300 000 of which the commission portion is R278 000 (more than 50% of his salary is commission based). He has taxable allowances (petrol, car, phone) of R120 000 which was used to produce his income. Hence his actual income needs to be reduced to R280 000 as he used the allowances to produce his income. 

What type of directive is requested and by whom is the directive filed? Is it done for a fixed percentage or value?

A: We are not certain what exactly the guidance is required on.  You refer to ‘income tax’ and to ‘the directive’ and also to the ‘income needs to be reduced’.  We will provide guidance in respect of both employee’s tax and normal tax.  

It is possible for the person in this instance to apply for a directive from SARS – refer to paragraph 11(a) of the Fourth Schedule to the Income Tax Act.  It specifically allows for SARS to issue "a directive to an employer authorising that employer to refrain from deducting or withholding any amount under paragraph 2 by way of employees' tax from any remuneration due to any employee of that employer; or to deduct or withhold by way of employees' tax from any remuneration in terms of paragraph 2, a specified amount or an amount to be determined in accordance with a specified rate or scale, … in the case of remuneration constituting commission…”  

In applying for the directive the employee would indicate if a fixed percentage is required (normal where commission is earned).  

Because the remuneration consists more than 50 per cent commission, the limitations of section 23(m) do not apply.  If a travel allowance is included in the remuneration, the deduction can be made in terms of section 8(1).  See also the SARS Interpretation notes 14 and 28.  

Disclaimer:

Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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