A travel allowance is “any allowance paid, or advance given to an employee in respect of travelling expenses for business purposes.” The general position is that private travel is taxable and business travel is not taxable.
Fundamentally, the legislative framework makes provision for two scenarios –
- Travel allowance.
A travel allowance given to an employee to finance transport, which in the ordinary course would be a set rate or amount per pay period. There are two inclusion rates for purposes of deducting employees’ tax (PAYE), namely 80% or 20%.
The standard withholding rate is 80%, unless the employer is satisfied that at least 80% of the use of the motor vehicle in question will be for business purposes, in which case the inclusion rate is only 20%.
- Reimbursive travel allowance.
A reimbursive travel allowance is an allowance paid to an employee for actual business kilometres travelled, according to either the SARS determined rate – which is R 3.82 per kilometre or as determined by the employer. Reimbursing an employee on a higher rate will increase the employee’s PAYE liability and may result in lower employee take-home pay.
How does one prove that travel was for business vs private?
The taxpayer would need to keep record of the date of business travel, the business kilometres travelled, the business travel details (where to and the reason for the trip), in a form of a logbook. SARS has provided an acceptable format for a logbook.
Calculating the claim
There are two methods of calculating the deductible amount against the travel allowance:
- Actual cost method
This method requires accurate information in the form of receipts, tax invoices and other relevant source documents. For the purpose of finance charges and wear-and-tear expenses the maximum vehicle value is R665 000.
Business kilometres ÷ Total kilometres x Total costs = Allowance claimable
- Deemed costs method.
The deemed costs method comprises three components: the fixed costs, the fuel costs and the maintenance costs. SARS provides a table from which the taxpayer determines the appropriate deemed cost elements based on the vehicle value.
Cost per kilometre x business kilometres = allowance claimable
