Allowances and fringe benefits: Part 2

In the previous newsletter we discussed the difference between a travel allowance and the right of use of a motor vehicle and attempted to illustrate the pros and cons of each.  We then found that each case should be evaluated separately since there are various factors that need to be considered to obtain the best possible tax benefit. In this newsletter we will look at subsistence and other allowances that an employee may receive and also consider the tax benefits and drawbacks applicable to each.

Subsistence allowance

A subsistence allowance is normally paid to an employee when the employee undertakes a business trip and has to incur certain expenses, e.g. for accommodation, transport, meals or other incidentals, and the employer wishes to reimburse the employee.

The question arises whether the employee is taxed on the amounts paid/reimbursed to him/her, even if the expenses were incurred solely in the execution of the employee’s duties.

The short answer, in most cases, is yes. However, the South African Revenue Service (SARS) permits certain deductions and exemptions, which provide relief to the employee.  Therefore it is important that every employee is aware of the deductions and exemptions available to him/her.

Section 8(1)(a)(i) of the Income Tax Act No 58, 1962 determines that all allowances or advances must be included in the taxable income of the receiver, excluding amounts actually spent on accommodation and/or meals and other incidentals when, in the course of executing his/her duties,  the employee is obliged to spend at least one night away from his/her normal place of residence.

Accommodation

Section 8(1)(a)(i) of the Act touches on two scenarios.

Firstly, in a case where the employer provides an allowance per night to the employee, the allowance is taxed on the amount actually paid/granted to the employee minus the actual expense incurred by him/her. For example, if Julius receives an allowance of R4 500 for three nights’ accommodation and spends only R3 000 on the accommodation, only R1 500 (R4 500 – R3 000) is included in his taxable income.

Secondly, it sometimes occurs that an employer pays an advance to an employee and requests the employee to hand in, on return from the trip, proof of expenditure together with the remainder of the advance. The taxable portion of the advance is then the amount of the advance minus the amount actually spent on accommodation minus the amount returned to the employer.

In both instances it is important to provide proof of the expenses incurred. It is also important to note that the allowance should not create losses. Should the costs incurred exceed the allowance, no deduction will be allowed for the amount by which the allowance is exceeded.

Meals and other incidental expenditure

Where the employer pays the employee an allowance or advance in respect of meals and other incidental expenses, the allowance or advance is also included in the employee’s income but the employee is entitled to claim one of the following deductions:

The amount actually spent on meals and/or other incidentals; or

The amount determined by the Commissioner of SARS for each day or part of a day the employee spends away from his/her normal place of residence.[1] (Note that the employee should spend at least one night away from home in order to qualify.)

The employee may choose the most beneficial option, provided the expenses do not exceed the allowance/advance.

In practice SARS permits the subsistence allowance to be included as a non-taxable allowance on the employee’s IRP5. Thus the deduction is allowed in most instances. It should be noted, however, that especially when an allowance is paid for accommodation, the provisions of Section 8(1)(a)(i) as set out above must be complied with.

Other allowances

Where a salaried person receives another allowance (e.g. an entertainment or cell phone allowance) the allowance is included in his/her taxable income and the expenses incurred (even the expenses incurred for business purposes) may not be deducted for tax purposes.

This, of course, creates a problem for some salaried persons who, by nature of their daily duties, have to incur business expenses that are not deductible against the relevant allowance received.

However, a “deduction” for these expenses may well be accomplished since, although SARS does not permit expenses incurred as other allowances to be deducted, the refunding of business expenses incurred by an employee is not included in the definition of other allowances.

Certain conditions apply, though. The expenses must be incurred on instruction of the employer for the purposes of the employer’s business, and proof of such expenditure must be submitted to the employer.

This means that an employee who is required by his/her employer to entertain clients from time to time, can incur this expense and claim it from the employer without any amount being included in the employee’s taxable income.

It is clear, therefore, that there are cases where the expenses incurred by an employee for business purposes, are indeed tax deductible, although it would be taxable if it were in the form of an allowance. Employers should therefore take into account the tax implications before deciding to include the provision of allowances in employee contracts.

[1] For the 2013 tax year the deduction for meals and incidental expenses for travel in the RSA amounted to R303 per day, and for incidental expenses only, R93 per day. Daily expenses for foreign travel are determined per country and are published by SARS in the Government Gazette.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. 

Documentation required for Income Tax Returns – Individuals

2015 Deadlines for Income Tax Returns for Individuals:

  • 30 September 2015 – Manual Submission
  • 27 November 2015 – eFiling Submission (non-provisional taxpayers)
  • 29 January 2016 – eFiling Submission for Provisional taxpayers

The following documents should, if applicable, be submitted to the accountant who completes your tax return and should be available if the South African Revenue Service (SARS) requests them:

  1. IRP5 and IT3 certificates

IRP5 and IT3 certificates reflecting salary, annuities, pension and other income received.

  1. Interest received – local and foreign

IT3 certificates reflecting the interest received for the year 1 March 2014 – 28 February 2015 relating to savings accounts, cheque accounts, fixed deposits and other investments.

  1. Dividends received – local and foreign

Details and/or proof of dividends received.

  1. Bequests and donations received

Details and/or proof of bequests and donations received.

  1. Capital gain or loss

The following information is required:

  • Was the asset your residential property?
  • Return on the sale of the asset.
  • Base cost of the asset, i.e. the purchase price if purchased after 1 October 2001, or a capital gain valuation of the asset.
  1. Other income

Details and/or proof of other income (e.g. partnership income).

  1. Medical fund contributions

– Medical fund contribution certificate.

– Proof of payment of claims not covered by your medical fund and paid by yourself.

  1. Annuity fund contributions

Annuity fund contribution certificates.

  1. Travel allowance

If you wish to claim expenses against your travel allowance, the logbook for the tax year is required, together with the following information concerning the vehicle for which you received the travel allowance:

  • Make and model
  • Year of manufacture
  • Purchase price
  • Registration number
  • Kilometre reading on 1 March 2014
  • Kilometre reading on 28 February 2015

If you kept a record of travel costs incurred during the year, proof of the following is required:

– Fuel and oil consumption

– Repairs done

– Insurance and licence fees

– Lease/Installment agreement

View the logbook:

http://www.sars.gov.za/AllDocs/Documents/Logbook/2014-2015%20SARS%20Logbook.pdf

  1. Income protector

Contribution certificates.

  1. Donations

Proof of deductible donations.

  1. Other information

Details of any other action or event that may influence your tax liability.

Download the checklist here: http://www.nwanda.co.za/Downloads/2015/List.pdf

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. 

Provisional tax for individuals

Provisional tax is not a separate tax but rather pre-payments towards your income tax liability for a specific tax year and is filed bi-yearly (August and February).  The aim of provisional tax payments is for SARS to collect their taxes on an ongoing basis prior to assessment.  The payment of provisional tax also helps taxpayers to fulfil their tax liability by spreading the payments over a year as opposed to a lumpsum payment.  Once SARS have assessed a taxpayer, the provisional tax payments will be offset against the final liability thereby reducing the final payment.

Underpayment of provisional tax

Underpayment of provisional tax underestimation penalties will be imposed by SARS if the following criteria is not met:

  • Actual taxable income > R1m on assessment and a provisional tax return in respect of the 2nd period was filed declaring income which is < than 80% of actual income finally assessed; or
  • Actual taxable income < R1m and taxable income estimated and declared on the 2nd provisional tax return is < basic amount (last assessed taxable income) and not within 90% of actual income.

Overpayment of provisional tax

If provisional tax was overpaid, i.e. provisional tax payments were more than the assessed tax liability for a tax year, the excess amount will be refunded to the taxpayer with interest.

Two compulsory and one voluntary provisional tax returns per tax year

SARS deems you to be a provisional taxpayer based on the following:

  1. You receive income other than remuneration e.g. interest income or rental income, which exceeds the annual tax thresholds (refer attached); or
  2. You made a taxable capital gain on the sale of shares, property, etc; or
  3. You received any other form of income which is not subject to monthly PAYE.

1st provisional tax return due in August of each year; and

2nd provisional tax return due in February of each year.

Should your ultimate tax liability in respect of a particular year exceed your tax paid by way of PAYE, 1st provisional tax return and 2nd provisional tax return, a top-up or voluntary 3rd provisional tax payment may be made by the September following the February year-end.  The tax liability, if paid by September, will bear no interest.  Should this top-up payment be made from 1 October onwards following your year-end, the liability will attract interest but no penalty will be imposed, provided the 1st and 2nd provisional tax returns have been calculated correctly.

Please consult the attached table for an easy-to-understand guide.  Should you require professional assistance with the calculations, submissions or payment of any of your provisional tax returns, please do not hesitate to contact our office.  Our Tax Department staff would welcome the opportunity to assist you.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

Nwanda internal news (July)

  1. Awesome rewards:

Congratulations to the following staff:

• Successfully obtained their BCom(Acc) Degree:
Daniel Adlam, Rukudzo Chikonye and Jamie-Lee Pietens

• Passed with Distinctions:

Hennie de Beer, Neliswe Mahlangu and Saafiyah Bashir

 • Passed SAIPA Professional Examination:

Faheemah Seedat

• Staff that went out of their way to assist:

Hennie de Beer – MIS Audit

Venice Jordaan – General office assistance

Fatima Wadia – Konica Minolta

  1. New Employees:

We are proud to introduce new Employees:

  1. Employees on the move:

Roxy Lorincz, Tanya de Bruyn, Odette Oosthuizen and Kedibone Maloba – we wish them the best in their future endeavors.

  1. Nelson Mandela – 18 July 2015:

This year the firm chose a charity close to our hearts to assist, not in time spent but in opening each individuals wallet.  The Partners pledged to match donations made by staff and a delivery was made to St Francis Care Centre on the 17th of July 2015.

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