Allowable deductions for commission earners
As a general rule, employees ie, those who, amongst other things, receive a fixed salary and/or work under the supervision and control of another, are in terms of section 23 (m) of the Income Tax Act only allowed to deduct very limited expenditure categories in calculating taxable income.
As an employee one does not have access to section 11(a) of the Act which is known as the general deduction formula. This section allows a person to deduct all expenditure incurred in producing income, provided the expenditure has firstly been laid out for the purpose of trade and, secondly, is not of a capital nature.
In the case of a person whose income is mainly derived from commission, this person has access to the general deduction formula and his/her expenses may, provided the requirements of the general deduction formula have been met, be allowed as a deduction in determining his/her taxable income.
According to the South African Revenue Service's Tax Guide for Small Businesses, "the general deduction formula provides that for expenditure and losses to be deductible they must be -
• actually incurred;
• during the year of assessment;
• in the production of income;
• not of a capital nature; and
• laid out or expended for the purposes of trade."
*Anton Lockem is a partner in Shepstone & Wylie Attorneys' tax department
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