Tax on travel reimbursements set to change
03 August 2012
Posted by: SAIT Technical
By Ruaan van Eeden (DLA Cliffe Dekker Hofmeyr Tax Alert)
The Taxation Laws Amendment Bill 2012 (TLAB) proposes changes to the taxation of variable remuneration which includes, among others, travel reimbursements.
Currently, where an employee receives a reimbursement pertaining to business travel undertaken, that reimbursement is not subject to the deduction of Pay-As-You-Earn (PAYE) at the time of accrual or payment, provided certain compliance requirements are met. It is only on assessment of the employees' individual tax return when the travel reimbursement (IRP5 code 3702) will become subject to normal tax in full, unless a deduction for business travel is claimed, either on the formula or actual cost basis. In other words, even though the travel reimbursement was prima facie for business related travel, this must still be substantiated on submission of the employees' individual tax return.
The TLAB proposes that the tax trigger for travel reimbursements be accelerated to the point where actual payment is made by an employer, as opposed to tax generally being triggered on assessment. What this means is that an employer will be required to deduct PAYE from any travel reimbursement at the time payment is made to an employee and will not be able to pay a travel reimbursement on a tax free basis.
The Explanatory Memorandum (EM) advances various reasons for proposing the taxation of variable remuneration, including travel reimbursements, on a payments basis. It appears the over-arching reason is to avoid tax mismatches where the employer claims a deduction for certain types of remuneration that has not been made subject to tax in the hands of the employee. What the EM does not state is that the payment basis of taxation, especially with regard to travel reimbursements, will again ensure upfront monthly PAYE to the South African Revenue Service that coincides with the 'tax now deduct later' principle that has dominated salary related tax amendments over the last couple of years, examples of which include the tightening of medical aid deductions, travel allowances and most recently the taxation of company cars.
The effective date of the proposed amendment to tax travel reimbursements on a payment basis is 1 March 2013 and employers would need to realign their internal reimbursement processes to ensure that PAYE is deducted when payment is made to an employee.