Page 233 - SAIT Compendium 2016 Volume2

IN 13 (3) Income Tax acT: InTeRPReTaTIon noTes IN 13 (3)
Example C
Facts:
An employee received a pensionable salary of R40 000 and commission income of R130 000 on sales. The employee contributed R3 000 to an approved pension fund and incurred commission-related business expenses of R70 000.
Result:
Since more than 50% of the employee’s remuneration consists of commission, the restrictions of section 23(m) do not apply. The R70 000 commission expenses may therefore be considered for deduction against the commission income of R130 000 under section 11. The pension fund contribution is unaffected by the introduction of section 23(m) and remains deductible.
Example D
Facts:
An employee received a pensionable salary of R60 000 and commission of R60 000 on sales. The employee contributed R4 500 to a pension fund and incurred commission-related business expenditure of R10 000, consisting of telephone and stationery costs. Result: Since not more than 50% of the employee’s remuneration consists of commission, the restrictions of section 23(m) apply. The commission-related business expenditure of R10 000 can therefore not be considered under section 11 for deduction. The pension fund contribution remains deductible.
Example E
Facts:
For the period 1 March 2002 to 31 August 2002 an employee received a salary of R300 000 from employer A, in respect of which cell phone airtime expenses of R3 000 were incurred. For the period 1 September 2002 to 28 February 2003 the employee received commission income of R250 000 on sales from employer B (which is not connected to employer A) and incurred commission-related business expenses consisting of telephone and stationery of R30 000.
Result:
For purposes of section 23(m), each contractual arrangement arising from unconnected sources has to be considered on its own. This means that section 23(m) prohibits the deduction of the expenses incurred in relation to remuneration received from employer A, but that section 23(m) does not prohibit the deduction of expenses incurred in relation to remuneration received from employer B.
Example F
Facts:
An employee receives a pensionable salary of R80 000 a year, commission income of R100 000 and is in receipt of a travel allowance of R40 000 for the year. The employee contributes R4 000 towards a retirement annuity. He was involved in a legal dispute with his employer and incurred legal costs of R5 000. In addition he incurred commission- related expenses of R35 000.
Result:
Since the employee’s commission income is less than 50% of his total income, that is, salary and total allowances (R80 000 + R40 000), the restrictions of section 23(m) will apply. The commission-related expenditure of R35 000 will therefore not be considered under section 11 for a deduction. The retirement annuity of R4 000 will remain deductible. The employee may be able to deduct the travel allowance if it is proved that he incurred business mileage and travel-related expenses. The legal costs of R5 000 may be considered for a deduction under section 11 (c).
Example G
Facts:
Mr. Z received a pensionable salary of R100 000 and contributed R6 000 to a pension fund. Mr. Z stays in a 100 square metre rented house and he uses a 15 square metre room exclusively as his home of ce. He pays a monthly rental of R2 000 and the total amount of rates and taxes for the year is R3 600.
Result:
Since Mr. Z does not have any other source of income, the restrictions of section 23(m) will apply. However, the following expenses will be deductible:
• Pension fund contributions of R6 000.
• Rental cost of R3 600 (15% of R2 000 x 12).
• Rates and taxes of R540 (15% of R3 600).
Example H
Facts:
An employee received a salary of R185 000. His employer paid him an additional amount of R50 000 as a retention bonus on 1 April 2009. Employees’ tax was deducted by the employer. In terms of the contract between the employer and employee, the employee was required to remain in the rm’s employment until he had served one full year. On 31 October 2008 (six months later) the employee resigned. In terms of the retention contract, the employee repaid the bonus.
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