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Expense boundaries and amounts on section 4016

Posted 3 January 2013 under Tax Questions

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Hi Tim

Awesome website!

I earn my income on commission and am often entertaining clients, paying for coffee at meetings and lunches, client gifts etc - all part of the relationship building process.

Because of what I have submitted on section 4016, I have been selected for audit. I have kept all my receipts for client entertainment. Can I just submit these receipts and what are the limits here?

Also I have also claimed for bank charges and client production costs. Is this within the boundaries of 'expenses incurred in the production of income?'

Thanks for the help, want to make sure I get this audit process right.


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TaxTimTaxTim says:
30 November 2012 at 16:37

Thanks very much for the complimentary words!

The basic rule is that you can deduct all expenses that you incur in producing income. So in non-tax terms, money spent that earns you money.

Now some expenses are easier to identify as being directly related to the income earned such as things like stock which you resale or advertising costs and things like that. Entertainment expenses are not as easily identifiable and you would need to use judgement when justifying to SARS that you actually incurred that cost for business purposes. So when submitting your receipts to SARS it is as simple as just giving them the slips, but also prepare a spreadsheet for them so they can follow what you have done and link it to the slips. If it is impossible for them to track what you are trying to claim, they may just disallow the deductions and in fact could even penalise you for overstatement of expenditure.

Regarding client production costs and bank charges, if these are for business purposes and you keep a separate bank account for which the charges relate then Yes they are deductible.

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