Income tax: deductibility of expenses incurred in the production of commission

Any expense actually incurred in the production of the income is tax deductible provided that it is not of a capital nature in terms of section 11(a) of the Income Tax Act. The negative test on the other hand, section 23(m) of the Act however prohibits expenditure in terms of section 11(a) of the Act in the event that the taxpayer’s remuneration is not primarily (more than 50%) derived from commission.

The commission must be directly attributable from that person’s sales or turnover attributable to that person. In other words, say for example a sales manager is paid a profit share on sales made by his sales persons, then that profit share will not qualify as commission for purposes of section 23(m)