When determining the best remuneration package for travelling employees, South African employers and employees are continuously considering the benefits between a travel allowance, a reimbursive travel allowance or both. For this purpose, the employees’ tax (“PAYE’’) and income tax consequences of these two allowances are set out in more detail below.
A travel allowance is an allowance granted by the employer to the employee for the use of his or her private motor vehicle for the employer’s business purposes. This includes any fixed travel allowances, petrol, garage and maintenance cards.
A reimbursive travel allowance is any allowance which is based on the actual distance travelled for business purposes and is normally paid by the employer to the employee by multiplying the actual business kilometres travelled by a fixed rate per kilometre.
For PAYE purposes, 80% of the fixed travel allowance must be included in the employee’s remuneration. This percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes. Employees must keep a record of the actual distance travelled during the year for business purposes by way of a logbook. The full amount of the allowance is disclosed in the IRP5 under code 3701.
In respect of the reimbursive travel allowance, no PAYE is payable on an allowance paid by an employer to an employee up to the rate of 361 cents per kilometre, regardless of the value of the vehicle. The reimbursement does also not have to be substantiated by a logbook. But is only available to an employee if no other form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle. Any excess reimbursed portion (exceeding 361 cents per kilometre) is, however, subject to PAYE just like a fixed travel allowance. Disclosure of this allowance is under codes 3702, 3722 and 3703 on the IRP5.
For income tax purposes, the full (100%) of the fixed travel allowance, as well as the taxable reimbursive travel allowance, will be added together on assessment.
The employee will, however, be allowed to claim actual business travel expenses against the travel allowance (subject to certain limits) and the portion exceeding the claim will be taxable on assessment.
Where no actual costs are claimed, the South African Revenue Service provides a table which sets out fuel costs (per kilometre), maintenance costs (per kilometre) and a fixed cost which may be claimed against a travel allowance depending on the value of the vehicle. However, no fuel cost or maintenance cost may be claimed in instances where the employee has not borne the full fuel or maintenance cost.
This article is a general information sheet and should not be used or relied upon 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. Errors and omissions excepted. (E&OE)