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Employee travel allowances & reimbursements
Most employers are aware that a travel allowance may be granted to an employee where it is anticipated that the employee will be required to undertake business travel by virtue of the duties of employment and that a travel allowance should not be merely used as a mechanism to reduce an employee’s PAYE liability. Taxand South Africa examines how the South African Revenue Service (“SARS”) has issued some employees’ tax assessments on the basis that in order to qualify for a travel allowance an employee must have travelled on business.
SARS is of the view that where employees who received travel allowances were able to claim a reimbursement for business mileage and they did not do so it may be concluded that an employee did not travel on business. In these circumstances it is then reasoned that the employee’s travel allowance does not fall within the ambit of section 8(1) of the Income Tax Act, 1962 (“Act”) and that consequently the full amount of the travel allowance should have been subject to PAYE.
Currently, 80% of a travel allowance is subject to PAYE. However in earlier tax years which may still be under review by SARS this percentage was as low as 50% or 60%. Should it be found that the allowance did not qualify as a travel allowance as envisaged in the Act the potential exposure to the underpayment of PAYE could be significant.
It is often the case that employees who travel for business purposes choose not to submit a claim for a fuel reimbursement in addition to their fixed monthly travel allowance because it is not worth their time and effort to do so. Also the requirement to keep a log book was only introduced in the 2010 tax year. Prior to this most employees used the gazetted tables to calculate their allowable travel allowance deductions in their annual tax returns. It was therefore not necessary to keep a record of actual business travel.
It cannot be said that employees who received travel allowances but who choose not to submit reimbursive fuel claims did not in fact travel for business purposes. Whether or not a reimbursive fuel claim was submitted by an employee should not be regarded as a criterion to be applied with hindsight as to whether the employee qualified for a travel allowance. Provided that the employer duly applied its mind whether to grant a particular employee a travel allowance based on the business travel requirements of their job and not as an automatic benefit by virtue of position within the organisation, a travel allowance granted on this basis should be regarded as an allowance in respect of transport expenses as envisaged in section 8(1)(b) of the Act.