FINANCE: Tax and Your Travel Allowance
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Pravin Gordhan's stated intention to balance the National Treasury's books by having SARS focus ever more vigilantly on tax law compliance, means that employers can’t afford to take any chances.
One of the more recent changes to the tax law, and the one that appears to have generated the most employer panic, has been around employee travel allowances, says Karen Schmikl, tax legislation specialist at Softline VIP. And while most employers are by now aware that as from 1 March, 2010, the taxable value of the travel allowance increases from 60% to 80%, there appears to be some uncertainty as to what to do about those extra benefits relating to travel. This includes petrol cards, reimbursive kilometres, maintenance and insurance, says Schmikl.
Fixed travel allowances are subject to monthly employees' tax, and must also be disclosed on employees' IRP5 certificates at the end of the tax year. “Although the act did not change that drastically, the portion of the travel allowance that needs to be taken into account for the purpose of calculating monthly PAYE deductions did increase from 60% of the allowance to 80%. In addition, the deeming provision against which one could claim travel expenses on assessment was removed – this means that all individuals who have a travel allowance will have to keep a logbook in order to prove their business expenses on assessment,” explains Schmikl.
One of those extra travel benefits, reimbursive kilometres where employees are reimbursed for actual distance travelled for business purposes, is not taxable on the payroll, but might be subject to tax on assessment. In terms of SARS’ code 3702, the value has to be added to the actual travel allowance and considered as part of the total taxable travel allowance.
Moreover, if you as employer are paying your employee a fixed travel allowance to enable them to buy a vehicle, and are covering any of the running costs or petrol in addition to the fixed allowance, those additional costs also form part of the travel allowance.
“What code 3702 does is that it forces employers to value all travel benefits. The whole point of taxing travel benefits is to subject the value of any private use of an employer-provided benefit to tax,” Schmikl adds. If an employer does not take all additional benefits into consideration when determining the value of the employee’s travel allowance, on assessment SARS will tax the amount for which business expenses cannot be proven, she warns.
But how do you decide when an employee qualifies for a travel allowance? “It seems logical, but the deciding factor is do they do a job that requires them to travel for business? After all, travel allowances exist to defray an employee’s expenditure for business related travel. Moreover, the travel allowance must have a reasonable value, determined by the value of the vehicle and the kilometres travelled in a year.
Schmikl advises employees to revise their travel allowances whenever they buy a new car, change job or are suddenly required to travel less or more for business.
As for the logbook, she says that although SARS does have an example on its website, this logbook is quite detailed. “The minimum information which you need to submit to SARS is the date of travel, the ‘from and to’ destinations, the reason for your travel, and the number of business kilometres travelled. And do remember to take your odometer readings at the end of every tax year,” Schmikl says.
Business News Sector Tags: Finance|