Employees' tax - travel allowances and reimbursements
22 May 2014
Posted by: Author: Hanneke Farrand
Authors: Hanneke Farrand and Jenny Klein (ENS)
Most employers are aware that a travel allowance may be
granted to an employee where it is anticipated that the employee will be
required to undertake business travel by virtue of the duties of his/her
employment and that a travel allowance should not be merely used as a mechanism
to reduce an employee’s employees’ tax ("PAYE”) liability.
However, the South African Revenue Service ("SARS”) has in
some instances issued employees’ tax assessments in respect of travel
allowances granted to employees on the basis that, in order to qualify for a
travel allowance, an employee must in fact have travelled on business. SARS is
further of the view that where employees who received travel allowances were also
able to claim a reimbursement for business mileage (typically on a rate per
kilometre basis) and he/she did not do so, it may be concluded that an employee
did not in fact travel on business. In
these circumstances, it is then reasoned that the employee’s travel allowance
does not fall within the ambit of section 8(1) of the Income Tax Act, 1962
("Act”) and that consequently the full amount of the travel allowance should
have been subject to PAYE.
There are two aspects to the above argument. Firstly, is it a requirement when granting a
travel allowance to an employee that the employer must ensure that that
employee does in fact travel for business purposes? The second aspect is whether it is reasonable
to conclude that an employee who received a travel allowance but did not submit
a claim for business mileage, did not travel for business purposes and that
such employee’s travel allowance accordingly does not fall within the ambit of
section 8(1) of the Act.
Currently, 80% of a travel allowance is subject to PAYE.
However, in earlier tax years which may still be under review by SARS, this
percentage was as low as 50% or 60%. Should it be found that the allowance did
in fact not qualify as a travel allowance as envisaged in the Act, the
potential exposure to the underpayment of PAYE could be significant.
Requirement to travel for business purposes
8(1)(a)(i) of the Act provides for an inclusion in the taxable income of the
recipient of any amount which has been paid or granted as an allowance or
advance by his/her principal, excluding any portion actually expended by that
recipient, inter alia, on travelling on business. Section 8(1)(a)(i) therefore deals with an
individual taxpayer‘s final tax liability in respect of an allowance or advance
granted by a principal (employer).
Section 8(1)(b) of the Act provides that any allowance or
advance "in respect of transport expenses” shall, to the extent to which such
allowance or advance has been expended by the recipient on private travelling
(including travelling between his place of residence and his place of
employment or business or any other travelling done for his private or domestic
purposes), be deemed not to have been actually expended on travelling on
Section 8(1)(a)(i) does, in our view, not require that an
employee must have travelled for business purposes or account to his or her
employer for actual business travel undertaken in order for the allowance
granted to him to qualify as a travel allowance. There is furthermore no requirement imposed
by legislation on an employer who grants an employee a travel allowance to
monitor the use of this allowance by the employee.
This is confirmed in SARS Interpretation Note No.14 (Issue
2) which states that an allowance is an amount of money granted by an employer
to an employee in circumstances where the employer is certain that the employee
will incur business-related expenditure but where the employee is not obliged
to prove or account for the business expenditure to the employer.
We maintain that a travel allowance may be given to an
employee on a prospective basis having regard to the reasonably anticipated
business travel requirements of the employee’s position, without the employer
being required to confirm whether or not the employee actually travels for
Reimbursive fuel claims
Where an employer’s travel allowance policy also allows
those employees who receive travel allowances to submit reimbursive fuel claims
at a rate per kilometre for business travel, submission of these claims by the
employee is typically optional.
The fact that an employee may not have claimed a per
kilometre reimbursement in respect of his or her business travel does not imply
either that such an employee was not required by the nature of his duties of
employment to travel on business, or that he/she did not in fact travel on
In practice, it is often the case that employees who travel
for business purposes choose not to submit a claim for a fuel reimbursement in
addition to their fixed monthly travel allowance because it is not worth their
time and effort to do so. Also, the
requirement to keep a log book was only introduced in the 2010 tax year. Prior
to this, most employees used the gazetted tables to calculate their allowable
travel allowance deductions in their annual tax returns. It was therefore not
necessary to keep a record of actual business travel.
It therefore cannot be said that employees who received
travel allowances but who choose not to submit reimbursive fuel claims, did not
in fact travel for business purposes.
In addition, whether or not a reimbursive fuel claim was
submitted by an employee should, in our view, not be regarded as a criterion to
be applied with hindsight as to whether the employee qualified for a travel
Provided that the employer duly applied its mind whether to
grant a particular employee a travel allowance based on the business travel
requirements of his/her job and not, for example, as an automatic benefit by
virtue of his/her position within the organisation, a travel allowance granted
on this basis should be regarded as an allowance in respect of transport
expenses as envisaged in section 8(1)(b) of the Act.
This article first appeared on ens.co.za.