Tax season: Travel allowances and logbooks must be accurate
There are essentially two types of travel allowances that employers can offer their employees. The first type includes allowances or advances with regards to general business-related transport expenses, while the second type covers allowances or advances to be used for expenses in relation to a vehicle used by the taxpayer for business purposes.
Employers are required to withhold pay as you earn (PAYE) from the travel allowance provided to the employee who uses their own vehicle for business purposes.
PAYE is calculated on 80percent of any travel allowance paid to an employee each month. Where employers are satisfied that at least 80percent of total mileage to be travelled by the employee in the tax year will be for business, PAYE may be calculated based on 20percent of the travel allowance paid.
Any amount of a travel allowance that a taxpayer does not actually expend for business purposes will form part of their taxable income.
To claim a deduction against a travel allowance, a taxpayer is required to put forward a claim for business travel costs when submitting their income tax return.
There are two ways for taxpayers to determine their business travel costs. One can use either the actual figures and expenses incurred or the actual kilometres travelled for business can be calculated by applying the deemed-cost-per-kilometre method, which uses a table that takes the value of the vehicle into account.
In either case, it is crucial to keep an accurate logbook, recording all business travel undertaken during the year of assessment. Sars often disallows logbooks that do not meet its minimum criteria.
Accordingly, it is important that taxpayers ensure that their logbooks contain the following information: the date of each business trip; the opening and closing odometer reading per business trip; total kilometres travelled per business trip (that is, the difference between the opening and closing odometer reading); the destination travelled to and from per business trip; the reason for the business trip; and details of any actual business expenses per business trip (that is, fuel, oil, repairs and maintenance).
Because only 80percent of a travel allowance is subject to PAYE, if a taxpayer does not submit a travel claim to Sars for business travel, 20percent of the travel allowance is effectively viewed as unspent. The unspent portion of the travel allowance received will be taxable on assessment, and the amount that you pay in each year in this case would be the tax on the 20percent of the allowance that had not been taxed during the year.
If the taxpayer finds keeping an accurate logbook too cumbersome, they could elect to receive a reimbursive travel allowance paid by their employer per business kilometre travelled at the prescribed rate (capped at R3.61 per kilometre). No logbook is required in this case and no PAYE is payable on the reimbursee travel allowance, provided that the rate paid by the employer does not exceed R3.61 per business kilometre travelled.
A reimbursive travel allowance is not available to a taxpayer who received another form of travel allowance or reimbursement.
Robin Galloway is a tax manager at Mazars in Port Elizabeth.