Page 245 - SAIT Compendium 2016 Volume2

IN 14 (3) Income Tax acT: InTeRPReTaTIon noTes IN 14 (3)
Example 13 – Determination of the travelling allowance inclusion rate by the employer
Facts:
M is paid a travel allowance of R5 000 per month by her employer, JKL (Pty) Ltd. In terms of her employment duties M is required to provide services to all of JKL (Pty) Ltd’s clients who are based in Gauteng. During the previous full year of assessment M maintained a detailed logbook which disclosed she had travelled a total of 61 015 kilometres, of which 53 092 kilometres were business travel. M and the nancial director of JKL (Pty) Ltd agree that her functions will remain much the same during the current year of assessment.
Result:
Determination of expected percentage business travel:
53 092 km / 61 015 km = 87%
87% of M’s travel in the previous year of assessment was for business purposes. In March 2012 based on the logbook for the previous year of assessment and the fact that M’s job pro le and responsibilities are not expected to change, JKL (Pty) Ltd is likely to be satis ed that at least 80% of the use of M’s motor vehicle for the current year of assessment will be for business purposes.
Accordingly, only 20% of the travel allowance, that is, R1 000 (R5 000 x 20%) may be included in M’s remuneration for employees’ tax purposes. The full allowance of R5 000, less any allowable deduction, will need to be included in M’s taxable income when she submits her tax return.
The method set out above is not the only method that an employer can use to assess whether an employee will travel more than 80% for business purposes. There may be other acceptable methods that employers can use to satisfy themselves of the 80% requirement based on the particular employee’s circumstances. SARS will, if applicable, consider whether other methods applied by an employee demonstrate that the employer did in fact properly apply its mind to the particular case. For example, with new employees or employees who change job positions, a prior year logbook may not necessarily be appropriate.
If employees’ tax has been withheld on 20% of a recipient’s travel allowance and circumstances change such that the employer realises that the employee will no longer use the vehicle more than 80% for business purposes for the year of assessment, from the month in which the circumstances change, employees tax must be withheld on 80% of a recipient’s travel allowance. The adjustment does not need to be made retrospectively; the change must merely be made from the month during which the employer reasonably became aware of the change in the employee’s circumstances.
6.3.2 Reimbursive travel claim
Reimbursive travel claims are not subject to employees’ tax. They must be included in taxable income, subject to the deduction of any allowable deductions, when the recipient submits his or her tax return.
7. Conclusion
Section 8 (1) (a) (i) –
• deals with all allowances and advances paid by a ‘principal’ to a ‘recipient’ (for example, travel, subsistence, public
of ce, cell phone and housing allowances); and
• provides that all such allowances and advances must be included in the recipient’s taxable income to the extent that it
was not expended as speci ed in section 8 (1).
Section 8 (1) only permits a deduction for expenditure incurred in relation to travelling on business, expenditure incurred for accommodation, meals and incidental costs while an of ce holder or employee is obliged to spend at least one night away from his or her usual place of residence as a result of business or of cial purposes and expenditure incurred by reason of the duties attendant upon public of ce. The method of calculating the amount of the allowable deduction is speci ed in section 8 (1). This Note discussed the methods of calculating the allowable deduction which, in the case of the travel allowance, includes actual business kilometres and an actual rate per kilometre or a deemed rate per kilometre as determined by the Minister of Finance in the Gazette. The allowable deduction for subsistence expenses may, depending on the circumstances, be based on a deemed rate per the Gazette or on actual expenditure.
Employers are generally required to calculate and withhold employees’ tax on a monthly basis on all advances and allowances. With effect from 1 March 2011 employers must include 80% of the travel allowance in remuneration. However, in the event that an employer is satis ed that at least 80% of the use of the motor vehicle for a year of assessment will be for business purposes, only 20% of the travel allowance or advance is included as remuneration and is subject to employees’ tax. Subsistence allowances are generally not subject to employees’ tax. The amount of the subsistence allowance must be included in remuneration in the month following the month in which the allowance was paid to an employee if the employee receives a subsistence allowance but does not spend the anticipated time away from home.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
Date of rst issue: 27 March 2003 Date of second issue: 8 June 2008
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 237