Page 240 - SAIT Compendium 2016 Volume2

Income Tax acT: InTeRPReTaTIon noTes IN 14 (3)
‘motor vehicle’ is a road vehicle powered by a motor or engine, especially an internal-combustion engine.* This would include a motorcycle.
The allowance or advance must be included in the recipient’s taxable income to the extent that it is not expended on travelling on business (see 5.1).
In the context of travel, an allowance or advance includes both a travel allowance and a travel reimbursement† (see 5.2).
A recipient who receives a travel allowance and a travel reimbursement must add the amount of the travel reimbursement to the amount of the allowance and calculate the allowable deduction for the number of business kilometres travelled.
A recipient who only receives a travel reimbursement must still determine the allowable deduction because, depending on the facts, the rate at which the recipient was actually reimbursed may exceed the allowable deduction. The allowable deduction is determined by applying the actual cost, deemed rate per kilometre method or the speci ed rate per kilometre (see 5.4.3 and 5.4.4).
The amount of the allowable deduction which may be deducted from the travel allowance, advance or reimbursement has two components, namely, the business kilometres travelled (see 5.4.2) and the expenditure per kilometre. Expenditure per kilometre may be determined using actual costs (see 5.4.3) or according to the deemed rate per kilometre as determined by the Minister of Finance by notice in the Gazette (see 5.4.4).
The amount of the allowable deduction is always limited to the amount of the allowance.
The motor vehicle the recipient uses is often owned by the recipient but this is not always the case, for example,
it could be a ‘company car’ which the employer has provided to an employee. The allowable deduction against an allowance or advance which is granted to the recipient for a motor vehicle that the recipient has been granted the right to use under paragraph 7 of the Seventh Schedule to the Act (that is, a ‘company car’) is Rnil.‡
Section 8 (1)(b) (iv) was inserted into the Act in 1990 to address schemes designed to inappropriately bene t from the lower rate of tax effectively levied on fringe bene ts. It provides that where an employee, the employee’s spouse or the employee’s child has directly or indirectly let a vehicle to an employer or the employer’s associated institution, the sum of the rental and expenses paid by the employer for the vehicle is treated as an allowance for the employee and not as rental income for the lessor (who may or may not be the employer) and the employee is deemed not to have received a fringe bene t from the employer under the Seventh Schedule to the Act (right of use of an employer-provided asset).
Paragraph 5.4 of this Note discusses the granting of an allowance or advance by a principal to a recipient for the use of a motor vehicle for business purposes.
5.4.2 Kilometres
With effect from 1 March 2010 the deemed kilometre method was deleted from the Act. Taxpayers wishing to claim the cost of business travel must base their claim on the actual business kilometres travelled and are required to prove the business kilometres travelled to the satisfaction of the Commissioner.
In order to do so recipients must keep accurate written records of their business travel and include, at a minimum, the following information:
• The odometer reading on the rst day of the year of assessment.
• The odometer reading on the last day of the year of assessment.
• For all business travel –
- the date of the travel;
- the kilometres travelled; and
- business travel details (where and reason for trip).
Written records of this information are often referred to as a logbook. It is not necessary to record details of private travel (for example, that the recipient went to the movies on ‘x; date and the distance travelled was ‘y’ kilometres) or daily opening and closing odometer readings. A logbook which taxpayers may use is available on the SARS website (www.sars.gov.za).
The accurate determination of what constitutes business travel is critically important and is determined by looking at the purpose of the trip and assessing whether it is for business purposes or private purposes.
In this regard, section 8 (1)(b) (i) provides that travelling between a recipient’s place of residence and place of employment or business is private travel. The location of a recipient’s place of employment or place of business is a factual enquiry. In relation to an employee’s place of employment, it is the place at which the employee must render services as agreed with the employer. The term ‘place of employment’ applies when the recipient of the allowance or advance is an employee and the term ‘place of business’ applies when the recipient is a holder of an of ce.
Travel between the place of employment or business and the place of residence is regarded as private travel even if the travel takes place after normal or during extended working hours.
Examples of private travel include, where –
• a tax consultant employed by a law rm in Johannesburg travels from home in Pretoria to the law rm’s of ce, the
travel between home and the of ce;
* Concise Oxford English Dictionary. Edited by Catherine Soanes, Angus Stevenson. 11th Edition Revised. New York: Oxford University Press, 2006. Collins English Dictionary. 3rd Edition. Glasgow: Harper Collins, 1991.
† That is, actual business kilometres travelled x an employer agreed rate per kilometre. ‡ Effective years of assessment commencing on or after 1 March 2011.
IN 14 (3)
Amount to be included in taxable income = amount of the allowance, advance or reimbursement received – (business kilometres travelled x expenditure per kilometre)
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