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Our helpdesk receives hundreds of questions from commission earners about how their tax is calculated. Many are also confused about which expenses they can claim. Hopefully our FAQ will help other taxpayers who might be puzzling over the same issues.
1. I have a salary and earn a small commission; can I claim for my travel to and from work every day? (The commission is based on the sales that my team makes telephonically per month).
Should the commission be less than 50% of your total income, unfortunately you won’t be allowed to claim a deduction for any expense that you might have incurred while generating the commission. In your case, your traveling to and from work is not directly related to the commission that you earn so you can’t claim a deduction for it even if your commission is more than 50% of your total income. This is because travel between home and office is always regarded as personal mileage.
2. I rent a chair at a salon, they don’t employ me, but my clients pay the cashier when they leave and I use the salon’s electricity, washbasin amongst other things. In turn, they withhold 25% of my profit and then transfer the remaining 75% commission into my account. Am I regarded by SARS as a commission earner or a freelancer?
It sounds like the salon might have the terminology mixed up, as you’re only paying the rent for using their chair, electricity and washbasin. You are regarded by SARS as a freelancer as you are required to pay your own tax over to SARS.
Should you have had an employment contract with them, and they deducted employee’s tax from you, then you would have been regarded as a commission earner.
3. I started working at a car dealership on 5 July 2018, prior to this I worked at a warehouse. I was wondering, if I can claim the expenses I incurred while earning my commission or if the fact that I wasn’t earning commission the whole year disqualifies me?
You’re still able to claim the business expenses you incurred while generating your commission income, even if you weren’t earning commission the entire year as long as your commission income (source code 3606) makes up more than 50% of your total remuneration (source code 3699).
4. As a commission earner I don’t often earn a steady income, can I claim a tax deduction for the interest that I pay on my credit card?
You unfortunately can’t claim a deduction for the interest that you had to pay on your personal credit card, if you used it for personal expenses.
5. My wife is a commission earner - she uses her personal car to travel to and from clients. Can she claim a tax deduction for the vehicle services, new wheels and fuel that she incurred for the year?
As a commission earner, your wife can claim these expenses, however, she needs to have kept a logbook and she should have all the slips for these expenses and the proof that she personally paid for it. Everything should be available as soon as SARS requests her to send them supporting documents.
6. I work part-time for a rental agency. I’m paid commission every time I find tenants for any of the properties that they manage. I use my personal phone to set up appointments with potential tenants; can I claim the airtime that I spend on this as a deduction?
Yes, you can claim the airtime that you spend on this, if your commission reflects on an IRP5 with source code 3606.
7. I want to change my employee’s income structure. They are currently earning salaries with allowances for traveling, cell phone, client entertainment etc. and I want to change it to commission. Can I do this if all my staff do is drive around to and from clients every day?
From a tax perspective this will probably make administration easier for your payroll’s office, but it could also cause great distress with your employees especially if their employment contracts stated that they would get all these separate allowances and a straight salary. It’s best that you consult the department of labour or discuss the benefits of this change with your employees prior to making any real changes.
The tax benefits are that they’ll receive a bigger deduction for their business-related expenses, and this could result in a bigger tax refund at the end of the tax year.
8. I’m a commission earner and therefore my income fluctuates every month. I don’t understand how the payroll department works out my tax. Please can you explain.
It’s important to understand upfront that tax on commission is calculated at exactly the same rate as a fixed salary. Commission earners though, are able to deduct their expenses related to their income earned. The confusion for many, comes from the fact that tax is calculated on a different amount each month (depending on your performance, of course), and this can result in different tax rates being applied month to month. To make matters a little more complicated, there are different methods your company can apply to work out your monthly tax amount on your commission. For more information about these methods, please read our blog here.
9. I earn a basic salary and commission. The total commission earned is more than 50% of my total earnings. Do I need to register for provisional tax?
No, you don’t, but you’re able to claim deductions (e.g. work travel and other business-related expenses) against that commission.
10. Do commission earners pay UIF and if so, how much is deducted. The commission payable is under R6 000 per month. Does the employer have to deduct UIF on amounts below R6 000?
If your total income consists of commission only, then no you’ll not pay UIF. As per the Labour Law, UIF isn’t deducted for commission earners. This applies to employees whose earnings are made up 100% of commission only.