I have a client that receives the following income: Pension, Annuities, Rental income and commission income. I want to find out how to apply Section 23 (m)? Must I include the rental income as the "total income"? to calculate if the commission income is l
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
Section 23(m) of the Income Tax Act 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 emphasis is on ‘remuneration’, and rental would not be remuneration.
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.”
It is also stated that “an employee … in receipt of two or more streams of income may thus be in a situation where the deduction of expenditure, losses or allowances relating to a “remuneration” stream of income is prohibited, while expenditure, losses or allowances relating to another trade remain deductible.” We believe that the following, taken from example E, may be relevant to your request:
“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.’