Picture: 123RF./LE MOAL OLIVIER
Picture: 123RF./LE MOAL OLIVIER

The negative effect the coronavirus lockdown has had on your income should reduce your tax liability for the 2021 tax year, but it may also reduce your deductions against your taxable income.

If you want to ensure there are no nasty surprises in your assessment next year, it may be wise to check on your likely liability and set aside what may be due.

Factors that could affect your deductions include: suspended or reduced retirement fund contributions; lost commission earnings and reduced business travel.

If your employer has cut your pay and suspended your retirement fund contributions, it should have adjusted your tax accordingly.

But if a pay cut left you out of pocket and you suspended your own contributions to a retirement annuity (not a group RA that you contribute to through an employer), this could affect any tax you owe or are owed when you are assessed for the 2021 tax year in July or August next year.

If you are self-employed, suffered a loss of earnings and suspended your RA contributions, you will also need to work out where you stand on the tax you owe. Depending on the depth of your income loss, it may be wise to contribute more to an RA when your income recovers or at least set aside any additional tax you may need to pay.

If you are deducting business travel expenses against a travel allowance paid by your employer, you should also be aware that if your travel has been reduced as a result of the lockdown but your allowance remains the same, it could lead to a nasty surprise next year, says Yolandi Esterhuizen, tax practitioner and compliance manager at Sage.

She says pay as you earn (PAYE) tax must be withheld from 80% of a travel allowance, unless your employer is satisfied you will use your vehicle at least 80% for business travel.

If you are using your vehicle mostly for business use, your employer can withhold tax of just 20% of the travel allowance. This means if you receive a monthly travel allowance of R1,000, tax will be calculated on either R800 or on R200, depending on how often you travel for business, she says.

When you submit your personal income tax return, you may claim a deduction against the allowance based on either your actual expenditure per kilometre, or the deemed or prescribed rate per kilometre, which is based on the value of your vehicle.

Esterhuizen says that if, for example, only 20% of your allowance of R3,000 a month is taxed and you typically travel 20,000km on business a year but now travel only 10,000km, your deduction against your allowance will be much reduced and when you are assessed next year you will be liable for tax on that part of the allowance against which you do not claim.

To eliminate any unpleasant surprises when your tax return is assessed, Esterhuizen suggests you ask your employer to withhold additional PAYE on your allowance each month, or to reduce the allowance for the rest of the year.

Commission earners will also need to engage with the SA Revenue Service (Sars) if their commission income has fallen off dramatically due to the lockdown, says Joon Chong, a partner at Webber Wentzel.

If you earn more than 50% of your total remuneration as commission, you can claim any type of business expense as long as it is incurred in the production of your income and is not capital or personal in nature, Chong says.

Unlike other salaried employees, commission earners are able to claim actual business travel expenses as deductions, and have more scope than salaried employees to deduct home offices expenses, she says. They can also claim cellphone costs, entertainment expenses and service fees.

Many commission earners have had a devastating reduction in commission as a result of Covid-19, which could see their anticipated commission income for the 2021 year of assessment falling below 50% of total remuneration and disqualifying a number of expenses that can typically be claimed.

Unprecedented

But Chong says there is an argument to be made that you should still be allowed to claim all your business expenses. This is because your remuneration is normally derived mainly from commissions based on sales, or turnover attributable to them.

The Covid-19 times are unprecedented, and the Organisation for Economic Co-operation and Development has acknowledged this period is exceptional and temporary.

This should also be acknowledged when it comes to determining whether you, as a commission earner, meet the 50% threshold in the 2021 year of assessment.

Chong says it would be a good idea to anticipate this, to prevent Sars disallowing the expenses you want to claim and forcing you to object to the additional assessment. You should provide a schedule with commission income with the source code 3606 that amounts to more than 50% of your total remuneration in the 2019 year of assessment and beyond.

Any communication you have from your employer on pre-lockdown sales targets for 2020 and reduced lockdown targets will help you demonstrate that the decrease in sales — and corresponding decrease in your commission income — is due to the lockdown, Chong says.

This year’s tax filing season has been delayed to August when Sars will begin issuing auto-assessments.

Tax practitioners suggest caution in accepting these assessments for the tax year that ended in February. This will be even more important for this tax year if you have worked less than 12 months, earned additional income or have more deductions, online tax practitioner Tax Tim advises.

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