South Africa's tax legislation has changed significantly in the past two years. To help you interpret the changes, Personal Finance has enlisted the help of Deborah Tickle, a tax partner at KPMG. This week she explains what deductions employees are allowed to make.
If you are an employee on a fixed salary, there's no point in you collecting those restaurant slips any more, even though you may need to spend some of your own money on entertainment to enhance your position in the company.
Why? The draft legislation which will put the tax provisions discussed by Finance Minister Trevor Manuel in his Budget speech into law, will, once passed through Parliament, no longer allow the deduction of entertainment expenditure from the entertainment allowance included in your fixed remuneration package.
It will also remove your ability to offset your club memberships against such an allowance. The removal of this particular deduction will perhaps not be a major hardship, since it was limited to R2 500.
This limitation was put into the law in 1985. Whereas in 1985 you may have been able to do some serious entertaining during the year, or at least deduct the cost of a club subscription or two, inflation has considerably eroded your ability to do so in today's world.
What is still of concern are the other deductions that may no longer be claimed against allowances provided to you as part of your remuneration package.
The draft law effectively says that any expenses which relate to employment, and for which a fixed salary is received, may not be claimed as a deduction against that salary.
Thus, for example, and perhaps of particular relevance, if you are given a cellphone allowance because you own your own cellphone, but your company recognises that you make calls that are for business purposes, you will not be able to deduct the cost of those calls against that allowance.
Like all tax laws, there are some exceptions, and this is where your ability to plan becomes important.
The restriction will not affect your pension and retirement annuity contributions. You will also be allowed to claim "wear and tear", that is, a depreciation allowance, on any assets you use for business purposes - for example, your cellphone or computer. Thus, if you finance the purchase of the computer you use at home for business purposes, it would be better to finance it with an instalment credit agreement, or bank loan, rather than a financial lease (lease payments will not be deductible).
You will also be able to claim a deduction in respect of bad or doubtful debts. If you earn a fixed salary, this is only likely to arise if your employer goes bankrupt, and cannot pay your salary.
If you use your own car for business purposes and receive a travel allowance, you may also continue to claim a deduction in respect of the costs of owning and running the car. So, if you have been keeping a logbook, you should continue to do so.
Similarly, if your employer gives you a subsistence allowance (in addition to your salary) when you have to go way from home overnight on business, this allowance will remain not taxable, provided it is not more than R65 for local trips, or $120 for overseas trips.
Of course, if your employer asks you to entertain your customers and pays for the entertainment, you will not be taxed on the costs.
Similarly, if your employer owns a cellphone and provides it to you to use only for business purposes, or reimburses you for specific business calls you make on your own phone, you will not be taxed. The onus to keep records of your calls will, in this instance, be much more onerous.
Finally, the restrictions on the deductions you may claim only apply if you earn a fixed salary. They do not apply if you earn commissions or similar income. In this instance, you may still deduct expenses which you incur directly to earn that income, including entertainment expenses, and even legal fees.
In conclusion, don't bother with collecting those restaurant slips, but plan carefully for other items you may previously have claimed a deduction for.