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Warning: Make sure your employment contracts is watertight when it comes to company expenses for commission earners

by , 18 March 2013
'Sometimes I think that tax law is a bit schizophrenic. First you find a section that allows you to deduct something, then you find another that says you can't! The rules around employment seem a little bit like that,' warns Steven Jones on MoneyWeb's tax site. And it's especially true when it comes to taxing expenses for employees who earn commission. Luckily, you can safeguard your company from an unnecessary tax audit if your employee's employment contract clearly states the expense is a precondition of employment. Here's how...

When it comes to the correct tax practice for employee expenses watch out. If your employee mainly earns commission income, you must clearly state in his contract of employment that he:

  • Is required to use certain assets in the course of his employment (it must be a precondition of his employment);
  • Is responsible for all costs related to the use of these tools of trade; and
  • Will receive an allowance in defrayment of these costs.

If you don't, warns tax expert Andre Van Staden in The Practical Tax Loose Leaf, you could get into big trouble if SARS conducts a random audit on your company.

Withstand any challenge from SARS by including these clauses into commission earners' employment contracts

Include these four clauses in your employment contracts to ensure they're robust enough to withstand a challenge from SARS and to ensure the deductibility of business-related expenditure incurred by your employees, says Van Staden:

#1 Travel allowance
SARS is incredibly strict when it comes to travel allowances for employees. To safeguard you company from SARS disallowing tax deductions claims, include a clause in your employment contract that states:

'The Employee is required to travel in performing the prescribed services and undertakes to have means of transport available and to provide for his/her own transport in performing the prescribed services. The employee shall bear all costs, losses and wear and tear arising from the use of transport facilities in accordance with this agreement.'

#2 Company cell phone
Tweak the clause example provided above to state that your employee's company cell phone is a viable company expense and that your company will bear the cost of it.

#3 Computer provided by your company
Tweak the clause example provided under the travel allowance to state that your employee's company computer is a viable company expense and that your company will bear the cost of it.

#4 General commission earner expenses –including (but not limited to) entertainment, telephone, travel, accommodation, spotter's fees, business administration
Tweak the clause example provided under the travel allowance to state that any expense your employee takes to generate leads that lead to sales are viable company expenses and that your company will bear the cost of them.

Bottom line: 'If your employment contract doesn't state clearly that the business expenses of a commission earner are a precondition of employment, SARS will challenge the deduction of these expenses,' warns Van Staden. Make sure your contracts are very clear on this to avoid hassles from SARS.

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