It is important for estate agents to be aware of the requirements of the income tax act in order to facilitate compliance and also ensure that all allowable deductions are claimed. The completion of the tax return for a commission earner is more complex than that for a normal salaried person, and thus more effort must be expended in keeping records, recording mileage and planning.
One of the challenges for a person who is solely reliant on variable commission income is to estimate the income and expenses for year ahead in order to obtain a tax directive and have tax deducted at a fixed rate. This will prevent the deduction of too much tax in a month where income exceeds the average. A prescribed form together with adequate supporting documentation and a clean tax clearance are required before a tax directive can be issued.
Commission earners may deduct various expenses relating to the earning of the commission income but there must be a clear correlation between the incurring of the expense and the earning of income. SARS will also look closely at whether the expense has been incurred for a private purpose.
Expenses such as cellphone expenses incurred for a dual purpose must have sufficient supporting reasons for portion to be claimed for business purposes.
The largest expense that can normally be claimed as a deduction is vehicle expenses and thus this requires special care to ensure that the claim is allowed. The most important supporting document for the vehicle claim is the log book which must comply with SARS requirements and support business travel. Furthermore, the cost price of the vehicle for depreciation purposes and running costs must also have adequate support.
In certain circumstances a commission earner may also claim a portion of their house expenses when business is conducted from a private residence. The expenses that may be claimed for a home office would relate to the area used and other relevant factors.
All taxpayers should make use of the eFiling service that SARS offers due to the convenience of submission and speed of resolution of any queries. eFiling is not only used to submit returns but also to upload documentation, reply promptly to SARS queries, access all income tax, VAT and PAYE information, apply for tax clearance, load payments and change details. It is becoming increasingly important to maintain accurate details as SARS has the power to penalise not only late returns and under-statement of income but also personal details that are incorrect.
In order to avoid costly mistakes it is advisable to make use of the services of a registered tax practitioner who can provide the correct advice and respond to any queries as soon as they arise.
Estate agents should be aware of tax-related matters than impact properties held by their clients such as capital gains tax and taxation of rental income. Many property owners who are renting out second properties are not aware of the fact that, under certain circumstances, they can claim losses on rental properties to offset other income when costs incurred on their rental properties exceeds the rental income. Capital gains tax needs to be paid on the profit made when fixed property that is not the primary residence is disposed of.
Peter Douglas is a registered chartered accountant and tax practitioner with 20 years of experience in the tax industry. He can be contacted at firstname.lastname@example.org or on 083 378 2236.