Do you pay too much tax as a commission earner?

Tax directives for individuals who earn commission enable SARS to instruct your employer or fund manager to deduct tax at a set rate/percentage (determined by SARS for your specific case) and not at the general income tax rates.

For commission earners, it’s worthwhile applying for a tax directive from SARS or you may end up paying too much tax if you’re charged at the standard income tax rate.

This is because the standard income tax rates are calculated by adding your commission to any other income you earn (ie basic salary). This is then aggregated out to an annual amount. In other words, it’s assumed that this amount will be the amount you’ll earn every month of the tax year, which isn’t the case.

Do you qualify?

If you earn more than 50% of your total remuneration as commission, you are not limited to the type of business expenses you can claim, as long as you incur these expenses in the production of your income.

Which expenses can you claim?

Unlike salaried employees, qualifying commission earners can claim travel expenses as deductions even if they do not receive a travel allowance or have the use of a company vehicle. This includes your vehicle’s wear and tear costs, interest and fees on vehicle finance instalments, maintenance, fuel, and licence and insurance costs.  A logbook should be used to determine business mileage from your total kilometres travelled.

Home office expenses are also deductible for commission earners. These are calculated by measuring your office space and proportionally claiming against rent, rates, utilities, interest fees on your bond, cleaning, internet and telephone use, as well as wear and tear on business equipment. Repairs – specifically for your home office – can be claimed in full.

Commission earners can also claim their accounting, legal, admin, and sales and marketing fees paid to service providers. You can also claim entertainment expenses that relate to sales and marketing activities.

As with any claims for deductions, supporting documents in the form of schedules, invoices, receipts, statements of accounts and calculations with amounts on schedules reconciling with the source documents should be retained for five years in case SARS requests them.