A director of a company use his/her private residence for business use. The business allow the director a monthly allowance of R35,000 to rent a property for both personal and business use. Business use is 21% of the property. The director does not operat
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
From the facts provided the problem may well be that the IRP5 was made out incorrectly. It is clear that the ‘monthly allowance’ was in actual fact correctly reflected as remuneration even it was only partially so. The portion included in the allowance that relates to the business use should not have been reflected as remuneration.
We don’t agree with your comment regarding the R25 000 being “non-taxable”. We assume you are referring to ‘no rental value’ proviso in paragraph 9(7B) of the Seventh Schedule to the Income Tax Act. In our view that doesn’t apply in this case.
Principally, the individual would then only be able to make a deduction in respect of the rent of the dwelling house or domestic premises, to the extent that the deduction is not prohibited under section 23(b). That paragraph has the ‘from commission or other variable other variable payments requirement’, but is also available if the person’ duties are mainly performed there. The problem is that the person can only get into section 23(b) (so to speak) if the section 23(m) hurdle is crossed. Section 23(m) of course has the ‘mainly from commission’ requirement. SARS ‘greyed out’ (and rightly so) the relevant fields on the ITR12 based on the fact that the person is in receipt of remuneration and the expense relates to employment.