I have a client that do consulting work for an overseas company. He invoice them every month in USD. Can I deduct the expenses that he incurred for his business like internet, office use, etc from his income and he then needs to pay tax on the nett. They
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
For purposes of the guidance that follows we accepted that the individual is a resident of the RSA and that the source of the receipts is in South Africa. The fact that it is invoiced in a foreign currency is then irrelevant to the issue you requested guidance with. The fact that the client is overseas, and possibly in a treaty country, is then also not relevant to the RSA resident.
The foreign currency is translated to RSA Rands in terms of section 25D of the Income Tax Act.
We also accept that the person is rendering the service, not as an employee, but as a person carrying on a trade independently from the client.
We then agree with your view. The taxpayer is carrying on a trade, as defined, derives ‘income’ therefrom, and consequently would be entitled to make a deduction of expenditure incurred under the relevant sections (11(a), 11(d), 11(e), etc.) of the Income Tax Act. If the expenses include a private or domestic element (the office for instance), an adjustment would have to be made in terms of section 23 of the Act.
The person is then also required to make provisional tax payments.