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The ‘know how’ of Travel Allowances

tax_on_travel_allowanceSimilar to last week’s article on Subsistence Allowances, we thought it wise to share this refresher on travel allowances, given the amount of questions we were bombarded with at the beginning of our new tax year.

Definition

Any allowance or advance in respect of travelling expenses not to have been expensed on business travelling to the extent that it has been spent on private travelling (this includes travelling between the employee’s place of residence and his/her place of employment).

The following two situations are envisaged, namely

  1. A travel allowance given to an employee to finance transport (for example, a set rate or amount per pay period), and
  2. A reimbursement given to an employee based on actual business travel

Special note

From 1 March 2010, the amount of the travel allowance that will be subjected to employees’ tax is 80%

What is a Reimbursive travel allowance?

Where an allowance or advance is based on the actual distance travelled for business purposes (that excludes private use), the amount expended on business is deemed to be the actual distance travelled, multiplied by the prescribed rate per kilometer fixed by the Minister of Finance. The 2013/14 rate as published as part of the National Budget, is R3,24 p/km.

What happens if an employee lets his vehicle to the company?

Where an employee, his/her spouse or child owns or leases a motor vehicle (whether directly or indirectly by virtue of an interest in a company, trust or otherwise) and such vehicle is let to the employer or associated institution in relation to the employer, the sum of the rental paid by the employer together with any expenditure in respect of the vehicle which was borne by the employer, is deemed to be a travel allowance. This deemed travel allowance must be declared as such and the employee will be entitled to claim expenses incurred for business travel as a deduction on assessment.

Important note

The rental received by the employee must not be declared as rental income but as a travel allowance. Although the employee obtains the right of use of the vehicle from his/her employer, he or she is not subject to a fringe benefit tax on the benefit arising from the private use of such motor vehicle.

Combination of a travel – and reimbursive allowance

Where a travel allowance is paid in addition to a reimbursive allowance or vice versa, both amounts will be combined on assessment. The combined amount will be treated as a travel allowance.

Employees’ tax and IRP5 disclosure

Courtesy: South African Revenue Service

Scenario

Must PAYE be deducted?

IRP5 Code

A fixed allowance is paid Yes 3701

 

Fuel and expenses paid by the employer (e.g.   petrol, garage, and maintenance cards) Yes 3701

 

Reimbursed at not more than the prescribed rate   per kilometer and travels not more than 8 000 kilometers. No other travel   allowance is received. No 3703

 

 

Reimbursed at not more than the prescribed rate   per kilometer and travels not more than 8 000 kilometers. Receives a travel   allowance or certain expenses are paid for by the employer. No (reimbursement)

Yes (fixed allowance)

3702

3701

 

Reimbursed at not more than the prescribed rate   per kilometer and travels more than 8 000 kilometers. No other travel   allowance is received. No 3702

 

 

Reimbursed at not more than the prescribed rate   per kilometer and travels more than 8 000 kilometers. Receives a travel   allowance or certain expenses are paid for by the employer. No (reimbursement)

Yes (fixed allowance)

3702

3701

 

Reimbursed at a rate exceeding the prescribed   rate per kilometer No 3702

 

80% of the travel allowance paid to the employee is subject to the deduction of employees’ tax. Where the employer is satisfied that at least 80% of the use of the motor vehicle for a year of assessment will be for business purposes, then  only 20% of the allowance is subject to the deduction of employees’ tax, with effect from the 1 March 2011.

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