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Who's affected by Section 23 (m) of the Income Tax Act?

by , 24 January 2014
The draconian Section 23 (m) of the Income Tax Act has been with us for a while. SARS applies its provisions mercilessly. Know where you stand regarding its application and be sure you stay one step ahead of the taxman. Continue reading as we help you determine whether or not Section 23 (m) affects you.

The Income Tax Act requires you to pay normal tax on your taxable income. Even though personal income tax rates are progressive (the more you earn the more tax you pay), your logical goal is to reduce your taxable income – legally, of course. Understanding Section 23 (m) will bring you a step closer...

The Practical Tax Loose Leaf Service explains that this section deals with certain business related expenses, losses or allowances that you won't be able to deduct from any remuneration you receive if you hold any employment or office.

The first step to understanding this section is to determine whether or not it affects you.

Section 23 (m) of the Income Tax Act affects the following people

Section 23 (m) applies to you if you're employed and you earn commission (not exceeding 50% of your earnings);

This section also affects you if you're employed and you earn remuneration as defined in the Fourth Schedule of the Income Tax Act.

In terms of the Act, remuneration includes any amount paid or payable to any person, including:

  • Salary
  • Leave pay
  • Wage
  • Overtime pay
  • Bonus
  • Gratuity
  • Commission
  • Fee
  • Emolument (profit from the holding of an office, such as company secretary or director)
  • Pension
  • Superannuation allowance (an allowance paid to a person who has become too old to work)
  • Retiring allowance or stipend (a clergyman's official income), whether in cash or otherwise and whether or not it's for services rendered.

So who's excluded from Section 23 (m)?

If you render services as one of the following, Section 23 (m) won't apply to you:

  • A labour broker not in possession of a valid IRP30 exemption certificate;
  • A personal service provider;
  • A natural person who normally earns mainly commission attributable to your personal sales or turnover;
  • An independent contractor, such as a sole proprietor.

If Section 23 (m) applies to you, stay tuned, next week we'll explain how you can make use of the Section 23 (m) deductions to shrink your tax bill.

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