Tax and Your Travel Allowance
30 April 2010
Posted by: Author: Karen Schmikl
Tax and Your Travel Allowance
How these are determined; who gets them; and how SARS taxes them
Pravin Gordhan’s stated intention to balance the National Treasury's books by having SARS focus ever more vigilantly on tax law compliance, means that employers can't afford to take any chances.
One of the more recent changes to the tax law, and the one that appears to have generated the most employer panic, has been around employee travel allowances.And while most employers are by now aware that as from 1 March 2010,the amount of the travel allowance to be included for PAYE purposes increased from 60% to 80%, there appears to be some uncertainty as to what to do about those extra benefits relating to travel.This includes petrol cards,reimbursive business kilometres,maintenance, and insurance.
Fixed travel allowances are subject to monthly employees' tax,and must also be disclosed on employees' IRP5 certificates at the end of the tax year.Although the Budget did not change that drastically, the portion of the travel allowance that needs to be taken into account for the purpose of calculating monthly PAYE deductions did increase from 60% of the allowance to 80%.
In addition, the deeming provision against which one could claim travel expenses on assessment was removed—this means that all individuals who have a travel allowance will have to keep a logbook in order to prove their business expenses on assessment.One of those extra travel benefits, reimbursive kilometres,where employees are reimbursed for actual distance travelled for business purposes, is not taxable on the payroll, but might be subject to tax on assessment. In terms of SARS’ IRP5 code 3702, the value has to be added to the actual travel allowance and considered as part of the total taxable travel allowance.
Moreover, if you as employer are paying your employee a fixed travel allowance to enable them to buy a vehicle, and are covering any of the running costs or petrol in addition to the fixed allowance,those additional costs also form part of the travel allowance.What code 3702 does is that it forces employers to value all travel benefits.The whole point of taxing travel benefits is to subject the value of any private use of an employer-provided benefit to tax.If an employer does not take all additional benefits into consideration when determining the value of the employee's travel allowance, on assessment SARS will tax the amount for which business expenses cannot be proven.
But how do you decide when an employee qualifies for a travel allowance? It seems logical, but the deciding factor is: do they do a job that requires them to travel for business? After all, travel allowances exist to defray an employee's expenditure for business related travel.Moreover, the travel allowance must have a reasonable value, determined by the value of the vehicle and the kilometres travelled in a year.
Employees need to revise their travel allowances whenever they buy a new car, change jobs, or are suddenly required to travel less or more for business.As for the logbook, although SARS does have an example on its website, this logbook is quite detailed.The minimum information which you need to submit to SARS is the date oft ravel, the ‘from and to’ destinations, the reason for your travel, and the number of business kilometres travelled.And do remember to take your odometer readings at the end of every tax year.
Source: By Karen Schmikl (Tax breaks)