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Revealed: Three tax benefits of having a water tight contract

by , 10 December 2013
It's your legal obligation to give your employees a written employment contract. The contract is only binding and enforceable when there's been an agreement. This means you've made an offer to your employee in writing and he's accepted it in writing. From a SARS perspective, these are three tax benefits of a water tight contract.

There are three tax benefits of a water tight employment contact.

Do you know what they are?

A water tight employment contract will help you achieve the following:

#1: A water tight contract means the integrity of your remuneration structures is beyond SARS' reproach. This means your contracts will survive an audit.

#2: Your employee can successfully claim deductions (for example, travel allowance).

Remember, SARS conducts random audits on individuals. And travel allowances are one of the items auditors check. If they find it isn't justified, or if your employee using his private car for business reasons isn't a precondition of his employment, they'll disallow the deduction.

#3: A water tight contract means when an employee's salary is more than 50% commission, he can claim all expenses incurred while generating his commission.

If your employment contract doesn't clearly state the commission earner's business expenses are a precondition of employment, SARS'll challenge the deduction of these expenses. Make sure your contracts are very clear on this.

Important: You'll only reap these benefits if you reflect these three items in your contracts:

There are three legal tax obligations your employment contracts must meet

According to the Practical Tax Loose Leaf Service, you must stipulate:

  1. The cash amounts due to your employee
  2. You must describe all fringe benefits
  3. You must also fully describe the remuneration structure.

To ensure SARS doesn't scrutinise your employment contracts, make sure they reflect these three items. That's the key to water tight contracts.

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