Brakes on travel allowances

Johannesburg - Travel allowances are among the last surviving tax structuring tools to defer tax liability until your annual income assessment is due.

The perceived abuse of travel allowances has resulted in tighter laws, the latest of which is an increase in the portion of the allowance to be taxed monthly.

With effect from March 1 2010, 80% of business travel allowances is subject to Pay As You Earn tax (PAYE) as with other remuneration. Before this date, only 60% was liable for PAYE.

Further amendments to tax legislation, which will be effective on the same date, include the abolishment of what is termed deemed business mileage. Taxpayers must now maintain a logbook of business travel to claim business expenditure in their annual tax return.

In the previous year, for those without a logbook the first 18 000km travelled was considered private use and only up to the next 14 000 km reckoned as deemed business use up to a maximum of 32 000km.

On assessment, the full allowance was taxable and actual or deemed business expenditure could be claimed as a deduction up to the amount of allowance received. But now, if a log book is not kept no amount may be deducted against an allowance eceived.

A prescribed table to determine the allowable deduction for wear and tear to personal vehicles (available from the South African Revenue Service website) may still be used if no records of fuel and maintenance costs were kept.

However, wear and tear must be calculated over seven years on a cost not exceeding R400 000. So, it may be far more tax effective to keep records of actual costs instead of using the published table.

Where the distance travelled for business purposes does not exceed 8 000km per annum, no tax is payable on an allowance received by an employee, up to the rate of 292c per kilometre.

Another focus area for Sars is assessing who qualifies for a travel allowance. "An employer should only grant such allowances to employees required to travel for business purposes using their private vehicles," said Fathima Carodia, senior tax manager at Deloitte.

"Under no circumstances are deskbound employees entitled to a travel allowance. Sars is likely to put the onus on the employer to ensure this is implemented appropriately and that the quantum of the allowance is justifiable in the light of expected actual business mileage," Carodia said. "These areas have been the focus of recent Sars audits."

She said employers should consider amending worker contracts, annexures and issuing amended salary structure forms. "The changes will impact the monthly cash flow of employees and could result in a lower claim in the individual's annual tax return."

- Fin24.com