Commission & home office expense

If you earn commission income as part of your salary package and it comprises more than 50% of your income, there are certain expenses you can claim/ have deducted from your income to make you pay less tax.

The reasoning behind this is that, in the production of this commission income, you will have had to incur certain expenses that your employer didn’t reimburse you for.

Imagine that you earn a basic salary of R4000 per month, and your job is to work from home and call clients to generate sales for the company you work for. The more business you make for the company, the more you earn.

So if you would ordinarily need a 1 bedroom apartment to live in, as a commission earner, you now need a 2 bedroom apartment. The second bedroom is your office.

If you ordinarily travel by public transport, you now need to buy a car to go visit clients at their premises.

So you are undergoing expenses of your own that your employer isn’t paying you for. You could say that you are self-employed in a sense. All of these extra expenses, you undergo because without them, you wouldn’t be able to do your job.

So it is only fair, that the portion of the expenses you are undergoing should be deducted from the income you receive from this job.

So let’s look at a simple example:

Basic salary: R4 000

Commission: R10 000

Total income: R14 000.

Your employer will pay you R14000, less the tax on this.

Expenses as follows:

Flat cost: R3000

50% of the floor area of the flat is a home office.

Car expense: R4000.

Car is used 50% of the time for work purposes.

So:

The flat cost that you can deduct is R1500 (R3000x50%)

The use of car expense you can deduct is R2000 (R4000x50%)

Total expense: R1500+R2000=R3500.

Going back to our income:

Income is R14000, expenses are R3500.

Income after expenses is R10500 (R14000-R3500)

So now you have to pay tax on only R10500, and not the R14000.

This is a very simplified explanation and example, the crux of which is that expenses incurred in the production of income, is tax-deductible.

Does this make sense? Leave your question below and I will address your concern.