We recently had numerous questions regarding subsistence allowances from customers restructuring their employees’ salary packages and thought it wise to share this update with our readers.
Definition
A Subsistence allowance is any allowance given to an employee or a holder of any office for expenses incurred or to be incurred in respect of personal subsistence and incidental costs (example drinks).
Important note
Compensation or an allowance paid to employees who reside far away from their normal place of employment or who do not spend the night away from home is not regarded as a subsistence allowance and is subject to employee’s tax. This also applies in the case of a labour broker.
Amounts deemed to be expended
Employees shall be deemed to have actually expended a certain amount (daily expenses in respect of meals and/or incidental costs) where the employee is absent from his/her usual place of residence:
- Where the accommodation to which the allowance or advance relates is in the Republic, an amount equal to the following is deemed to be expended for each or part of a day in the period during which the employee is absent from his/her usual place of residence:
Only incidental costs = R88.00, or
Meals and incidentals = R286
- Where the accommodation to which the allowance or advance relates is outside the Republic, an amount equal to the prescribed amount applicable to the relevant country is deemed to be expended for each day or part of a day in the period during which the employee is absent from his/her usual place of residence.
These amounts are published each year and can be obtained from your accountant. Amounts laid down for travelling abroad will only apply to employees who are ordinarily resident in the Republic in respect of continuous periods spent outside the Republic.
Employer expenses
The amounts deemed to have been expended do not apply to the extent that the employer has borne expenses (other than by means of payment or granting of an allowance or advance) in respect of which the allowance was paid for each day or part of a day.
Important note
A subsistence allowance is intended for abnormal circumstances and therefor any allowance of this nature cannot form part of the remuneration package of an employee. It is an amount paid by an employer to the employee IN ADDITION to the employee’s normal salary.
If a subsistence allowance or advance is paid to an employee or after 1 February 2006, the allowance or advance is deemed to become payable to the employee in the following month in respect of services rendered where such an allowance or advance was paid to the employee during any month in respect of a night away from his/her usual place of residence and that employee has not by the last day of the following month either spent the night away or refunded that amount to the employer.
Employees Tax (PAYE)
Employees’ tax must not be deducted from the subsistence allowance, regardless of whether or not the deemed amounts and/or prescribed periods are exceeded.
Example
An employee is sent to the US by his employer to market a product for the company and he is absent from his usual place of residence for a total period of 3 weeks. The employer pays the actual cost of the employees’ lodging and furthermore pays the employee and allowance of US$130 per day for meals and incidental costs
The employer does not need to deduct employees’ tax but the full amount of the allowance must be reflected on the employees’ IRP5 as a non-taxable subsistence allowance as the daily allowance does not exceed the prescribed rate per day.
