Must an independent contractor keep a travel logbook to get a deduction for travel expenses?
03 March 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: An independent
contractor’s annual financial statements are currently being audited by SARS.
One item, motor vehicle expenses is being analysed.
1. Do the motor vehicle expenses incurred require
the support of a travel log book? SARS requested the logbook.
2. I thought a travel logbook is only applicable to
travel allowances for employees.
3. If so, would a travel logbook now become
necessary for sole proprietors, as I consider this taxpayer to better suit this
4. The independent contractor in question has
different income sources.
5. Do any of the SARS interpretation notes deal
6. How would it be possible to maintain a travel
logbook for a variety of income sources?
7. My approach has been to record all motor vehicle
expenses and add back a deemed private portion. Same has been accepted after
audit, in previous years.
8. This methodology has been applied to sole
proprietors and professional persons’ tax returns and accepted by SARS.
A: Is a
Sole traders many times use their own vehicles for business travel
purposes for which they will seek a deduction in terms of section 11(a) of the
Income Tax Act ("ITA").
They will be able to obtain the deduction to the extent that
the expenses are actually incurred in the production of income.
Remember, however, that section 11 deductions must be read
together with section 23 of the ITA, which prohibits deductions in certain
Section 23(g) specifically disallows deductions "in
respect of...any moneys, claimed as a deduction from income derived from trade,
to the extent to which such moneys were not laid out or expended for the
purposes of trade."
A sole trader's motor vehicle is usually used for both
private and business purposes. All the expenses incurred in respect of that
vehicle will not expended for the purposes of trade and to such extent, will
not be deductible in terms of section 11(a).
The sole trader must therefore apportion his motor vehicle
expenses (which he actually incurred) between whatever relates to business use
and private use. It is only the portion of total motor vehicle expenses
relating to business use that will be deductible [assuming all other section
11(a) requirements are met]. This is why business kilometres travelled during
the tax year, and by extension a logbook to prove such, is important. It allows
the sole trader to verify (to SARS) the apportionment of the vehicle expenses
for business use.
Section 102(1)(b) of the Tax Administration Act (TAA) states
that the taxpayer bears the burden of proving that an amount is deductible. The
logbook can assist the taxpayer in discharging this burden of proof.
Furthermore, section 23 of the TAA also requires that a person who has
submitted a return keep records that enable SARS to be satisfied that a person
has observed the requirements of a tax Act.
In conclusion, SARS can request a logbook for the purpose of
verifying the motor vehicle (business) expenses of a sole trader.
With regards to the maintenance of a logbook for travel
expenses incurred in the production of various income sources, the taxpayer may
have one logbook and record the kilometres travelled for the different business
purposes. Typically logbooks have sections where one is required to provide
details for what exactly the business travel pertains to. The taxpayer can
therefore specify whether the travel was in respect of his work as a freelance
journalist, newsreader, television presenter, public speaker etc.
The following is an excerpt from the SARS 2014 Comprehensive
Guide to the ITR12 return for individuals:
8.5.5 TRAVEL EXPENSES
(NO ALLOWANCE E.G. COMMISSION INCOME)
If you did not receive a travel allowance but incurred
travel expenses in the production of your income, you may claim a deduction
based on a logbook that must be retained for a period of 5 years after the date
of submission of the return and must be available on request from SARS. The
amount of your claim must be filled in next to code 4015.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.