#YourTaxMatters: Earning extra income and the tax implications

This article aims to provide clarity and certainty on how it happens.

Commission Income

Commission earners who normally earn more than 50% of their total remuneration as commission income are allowed to claim certain expenses incurred in the production of income and which are not of a capital or personal nature.

Examples of expenses could include:

 Actual business travel expenses, even if the taxpayer does not receive a travel allowance or make use of a company vehicle.

 Wear-and-tear on certain equipment used for trade (business equipment, vehicle, etc.)

 Mobile phone costs

Please note: A logbook is required to record business kilometers

Home office expenses

Taxpayers are allowed to claim home office expenses when they submit their tax return, provided they meet the following requirements:

 The part of the home, i.e., the office space, for which a claim is submitted must be occupied for purposes of a trade (which includes employment).

 The office occupied must be specifically equipped for purposes of the trade, e.g. a home study with a desk, computer, and so forth.

 The employee must regularly and exclusively use the office for business purposes.

 If the taxpayer does not earn income mainly from commission, they will also be required to perform their duties mainly (more than 50%) from the home office. Employees who earn mainly commission must perform their duties mainly (more than 50%) outside of an employer-provided office.

 A letter from the employer confirming that the employee is required to work mainly from home / not from the employer’s office, may be required for audit purposes.

Types of expenses include:

 Rental of property

 Cost of repairs to premises (home office only)

 Rates and taxes

These expenses must generally be apportioned based on the size of the home office in relation to the total home.

Investment Income Declaration

Individuals who receive investment income will be subjected to income tax on this income. This income must be declared on their income tax return annually.

Rental income

Rental income is letting out of:

 Residential or commercial accommodation

 Holiday Homes

 Renting a portion of your home

Examples of claimable expenses:

 Agency fees

 Certain insurance products

 Repairs in respect of the area let out

 Security and levies

Expenses of a capital or personal nature are not allowed e.g. the capital portion of a bond repayment.

Local and foreign interest

If taxpayers own investments locally, their financial institution should issue a tax certificate (IT3(b)) which they must use to complete the investment section of their income tax return.

South African residents qualify for the following exemption on local interest income:

The first R 23 800 for individuals under 65 years old;

The first R34 500 for individuals 65 years and older.

These exemptions will be automatically applied by SARS. The taxpayer should therefore declare the full value of interest earned.

Foreign Interest Income

There is no exemption portion on foreign interest income. However, taxpayers may be able to deduct any foreign taxes they have paid on that interest, subject to certain limitations.

Dividends Tax

Dividends tax is a final tax at a rate of 20% on dividends paid by resident companies, and paid by non-resident companies in respect of shares listed on the JSE or any other South African licensed exchange. The company paying the dividend must withhold the tax and pay it to SARS.

Dividends are tax-exempt if the beneficial owner of the dividend is a South African company.

Non-resident beneficial owners of dividends may benefit from reduced tax rates in limited circumstances.

Travel claims

 A travel allowance is any allowance or advance paid or given to an employee in respect of travelling expenses for business purposes.

 Employees and office holders in receipt of a travel allowance may claim expenses incurred on travelling on business.

 An accurate logbook substantiating business travel must support any claim for a deduction of the business portion of the travel allowance.

Record-keeping

By law, taxpayers are required to keep tax records for 5 years, from the date of submission of the tax return.