Employment contracts normally have wording which refers to a ‘travel allowance’, ‘reimbursement of travel costs’ and ‘use of a motor vehicle’ (employer owned or leased). In most countries, each of these areas have distinct treatments from a payroll and tax point of view. To be compliant, the payroll manager needs to ensure that the correct treatment is followed. This month Sharon Tayfield takes a detailed look at the situation in South Africa.
All employers are advised to ensure that the wording in their employment contracts or letters of appointment are synchronised with the payroll and tax legislation in the countries in which they operate.
By far, the most common approach is for employers to provide employees with the following (or combination of) benefits for business related travel:
• A travel allowance to finance transport costs
• A reimbursive allowance to reimburse the employee for actual business travel expenses incurred by the employee.
Employers are advised to ensure that the wording in the contracts and letters of employment clearly states that as part of the employee’s responsibilities, the employee is expected to travel on behalf of the employer, to fulfil the employee’s responsibilities.
Operating rules for payroll and PAYE
Normally, 80 per cent of the travel allowance is included in taxable remuneration. However, if the employer is satisfied that at least 80 per cent of the allowance will be used for business purposes, then the employer is permitted to only include 20 per cent of the value of the travel allowance in taxable remuneration.
The employee can also opt to have 100 per cent of the allowance included in taxable remuneration. (This would normally be in cases where the employee receives other non-employment taxable income or where the employee decides not to keep a logbook.)
It is therefore highly probably that on any given South African payroll operating travel allowances, you could have employees on either of these options. Irrespective of the percentage of the travel allowance that is included in the taxable remuneration, the employee will be required to submit a detailed log book, detailing business and private travel, to the South African Revenue Service (SARS), to claim any deduction against the travel allowance.
Failure to submit the logbook may result in SARS not allowing any deduction against the allowance. This effectively results in 100 per cent of the travel allowance being included in the taxable remuneration calculation.
The employee can make a claim for the following actual costs when they submit annual tax filings (if proof of costs are kept):
• Wear and tear
• Maintenance and repairs
• Vehicle licence costs
• Insurance
• Finance charges
The employee also has an option to claim costs based on ‘deemed amounts’. (Tables are available on the SARS site detailing the deemed costs).
If the employee has a company-owned fuel, garage or maintenance card, the amount on the card is added to the travel allowance and included in taxable remuneration at the same rate at which the travel allowance is included.
The amounts would be included on the annual tax certificates issued to the employee under the tax code 3701.
Reimbursive allowances
These could fall into one of two tax reporting codes depending on the criteria: rate per km received (in relation to the prevailing prescribed rate), distance travelled that is reimbursed and access to other travel allowances.
Tax code 3703
If the employee is reimbursed at less than or equal to the prevailing prescribed rate per kilometre (currently Rand 3.18/km), the business kilometres reimbursed do not exceed 8,000km for the year and the employee receives no other travel allowances, then the amount which the employee receives will not be taxed at source and will be included on the tax certificate at the end of the tax year as code 3703. (Note that all three criteria must be met).
The employee will not be required to submit a logbook and on assessment SARS will not include the amount in the final tax calculation of the individual.
Tax code 3072
If the employee is reimbursed at more than the prevailing prescribed rate per kilometre, the business kilometres reimbursed exceed 8,000kms for the year, or the employee receives other travel related allowances/amounts, then the amount which the employee receives will be included on the tax certificate at the end of the year as code 3702.
The employee can elect the rate at which the amounts will be included in taxable remuneration.
My past experience suggests that it would be best practice to include at least 80 per cent of the reimbursement amount in taxable remuneration, as most employees who receive this form of reimbursement fail to submit the required logbook and subsequently find that they are faced with a tax liability on assessment.
Use of a company motor vehicle
The employee would generally be able to make use of the vehicle both for private or domestic use.
Travel between the employee’s home and place of work is deemed to be private travel. (This concept is common across many tax regions). The taxation of this particular fringe benefit (the private use of the vehicle), is governed by Paragraph 2(b) and 7 of the 7th schedule to the Income Tax Act.
The legislation covers the methodology to use in calculating the determined value of the vehicle.
The value of the fringe benefit is calculated as 3.5 per cent of the determined value (for each month that the employee uses the vehicle). In cases where the vehicle is subject to a maintenance plan, the fringe benefit is reduced to 3.25 per cent of the determined value. The value of the fringe benefit can also be reduced by the value of any consideration paid by the employee for the private use of the vehicle.
If the employee received a travel allowance in addition to the use of a company car, he/she would not be able to claim any deductions against the travel allowance if the travel allowance related to the same vehicle.
It is again standard best practice for 80 per cent of the fringe benefit to be included in the employee’s taxable remuneration. But where the employer is satisfied that at least 80 per cent of the use of the car is for business purposes, the employer can reduce the portion to be included in taxable remuneration to 20 per cent.
Again, on assessment, SARS will include 100 per cent of the benefit in taxable remuneration should the employee fail to submit a valid log book when the employee submits their personal tax filing for the tax year.
“The employee would generally be able to make use of the vehicle both for private or domestic use. Travel between the employee’s home and place of work is deemed to be private travel. ”
By Sharon Tayfield
Praxima Africa Payroll Systems (Pty) Ltd
Employment contracts normally have wording which refers to a ‘travel allowance’, ‘reimbursement of travel costs’ and ‘use of a motor vehicle’ (employer owned or leased). In most countries, each of these areas have distinct treatments from a payroll and tax point of view. To be compliant, the payroll manager needs to ensure that the correct treatment is followed. This month Sharon Tayfield takes a detailed look at the situation in South Africa.
All employers are advised to ensure that the wording in their employment contracts or letters of appointment are synchronised with the payroll and tax legislation in the countries in which they operate.
By far, the most common approach is for employers to provide employees with the following (or combination of) benefits for business related travel:
• A travel allowance to finance transport costs
• A reimbursive allowance to reimburse the employee for actual business travel expenses incurred by the employee.
Employers are advised to ensure that the wording in the contracts and letters of employment clearly states that as part of the employee’s responsibilities, the employee is expected to travel on behalf of the employer, to fulfil the employee’s responsibilities.
Operating rules for payroll and PAYE
Normally, 80 per cent of the travel allowance is included in taxable remuneration. However, if the employer is satisfied that at least 80 per cent of the allowance will be used for business purposes, then the employer is permitted to only include 20 per cent of the value of the travel allowance in taxable remuneration.
The employee can also opt to have 100 per cent of the allowance included in taxable remuneration. (This would normally be in cases where the employee receives other non-employment taxable income or where the employee decides not to keep a logbook.)
It is therefore highly probably that on any given South African payroll operating travel allowances, you could have employees on either of these options. Irrespective of the percentage of the travel allowance that is included in the taxable remuneration, the employee will be required to submit a detailed log book, detailing business and private travel, to the South African Revenue Service (SARS), to claim any deduction against the travel allowance.
Failure to submit the logbook may result in SARS not allowing any deduction against the allowance. This effectively results in 100 per cent of the travel allowance being included in the taxable remuneration calculation.
The employee can make a claim for the following actual costs when they submit annual tax filings (if proof of costs are kept):
• Wear and tear
• Maintenance and repairs
• Vehicle licence costs
• Insurance
• Finance charges
The employee also has an option to claim costs based on ‘deemed amounts’. (Tables are available on the SARS site detailing the deemed costs).
If the employee has a company-owned fuel, garage or maintenance card, the amount on the card is added to the travel allowance and included in taxable remuneration at the same rate at which the travel allowance is included.
The amounts would be included on the annual tax certificates issued to the employee under the tax code 3701.
Reimbursive allowances
These could fall into one of two tax reporting codes depending on the criteria: rate per km received (in relation to the prevailing prescribed rate), distance travelled that is reimbursed and access to other travel allowances.
Tax code 3703
If the employee is reimbursed at less than or equal to the prevailing prescribed rate per kilometre (currently Rand 3.18/km), the business kilometres reimbursed do not exceed 8,000km for the year and the employee receives no other travel allowances, then the amount which the employee receives will not be taxed at source and will be included on the tax certificate at the end of the tax year as code 3703. (Note that all three criteria must be met).
The employee will not be required to submit a logbook and on assessment SARS will not include the amount in the final tax calculation of the individual.
Tax code 3072
If the employee is reimbursed at more than the prevailing prescribed rate per kilometre, the business kilometres reimbursed exceed 8,000kms for the year, or the employee receives other travel related allowances/amounts, then the amount which the employee receives will be included on the tax certificate at the end of the year as code 3702.
The employee can elect the rate at which the amounts will be included in taxable remuneration.
My past experience suggests that it would be best practice to include at least 80 per cent of the reimbursement amount in taxable remuneration, as most employees who receive this form of reimbursement fail to submit the required logbook and subsequently find that they are faced with a tax liability on assessment.
Use of a company motor vehicle
The employee would generally be able to make use of the vehicle both for private or domestic use.
Travel between the employee’s home and place of work is deemed to be private travel. (This concept is common across many tax regions). The taxation of this particular fringe benefit (the private use of the vehicle), is governed by Paragraph 2(b) and 7 of the 7th schedule to the Income Tax Act.
The legislation covers the methodology to use in calculating the determined value of the vehicle.
The value of the fringe benefit is calculated as 3.5 per cent of the determined value (for each month that the employee uses the vehicle). In cases where the vehicle is subject to a maintenance plan, the fringe benefit is reduced to 3.25 per cent of the determined value. The value of the fringe benefit can also be reduced by the value of any consideration paid by the employee for the private use of the vehicle.
If the employee received a travel allowance in addition to the use of a company car, he/she would not be able to claim any deductions against the travel allowance if the travel allowance related to the same vehicle.
It is again standard best practice for 80 per cent of the fringe benefit to be included in the employee’s taxable remuneration. But where the employer is satisfied that at least 80 per cent of the use of the car is for business purposes, the employer can reduce the portion to be included in taxable remuneration to 20 per cent.
Again, on assessment, SARS will include 100 per cent of the benefit in taxable remuneration should the employee fail to submit a valid log book when the employee submits their personal tax filing for the tax year.
“The employee would generally be able to make use of the vehicle both for private or domestic use. Travel between the employee’s home and place of work is deemed to be private travel. ”
By Sharon Tayfield
Praxima Africa Payroll Systems (Pty) Ltd
