If a client earns a basic salary as well as commission, but the commission is less than half of the basic can the client still claim for entertainment or for other claims under commission? Or does the commission need to be more than 50% of the basic.
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
Section 23(m) of the Income Tax Act prohibits any deduction under section 11 (the entertainment expenditure will have to qualify under section 11(a) and not be limited by section 23(g)) if the expenditure relates to any employment of, or office held by, any person in respect of which he or she derives any remuneration, as defined in paragraph 1 of the Fourth Schedule. This prohibition doesn’t apply if the person is “an agent or representative whose remuneration is normally derived mainly in the form of commissions based on his or her sales or the turnover attributable to him or her”.
The current practice generally prevailing (see Interpretation note 13) is that “the term “mainly” is interpreted to mean more than 50% of the taxpayer’s gross remuneration. This means that the total income of the taxpayer (including 100% of all allowances) must be compared to his or her commission income.”
On the facts provided the individual would not be able to make a deduction of the expenditure.