Travel Allowance – Application of amendments to tax

If you receive a travel allowance or use a company vehicle, you need to check that the tax is being applied correctly. Amendments, to tax on travel allowances and right of use of motor vehicle, have been made by the South African Revenue Services (SARS) from 01 March 2011. This article will review the tax implications of the various applications.

Travel Allowance

A basic travel allowance pays the employee the amount expected and calculated, as a reasonable estimate of what the employee is expected to travel in a month, given the nature of the job. This travel allowance is expected to cover the fuel and repairs and maintenance cost of the employees vehicle that is used for business travel. As from March 2011 travel allowances will be taxed at 80%. The employee is then expected to maintain a Travel Log Book. The log book will be used to prepare the employees income tax return. On assessment by SARS the tax could be reduced and refunded to the employee. If at least 80% of the use of the vehicle will be for business use, then 20% tax could be used. If unsure, use the 80%.

Log Book

A log book is a record of an individuals business travelled kilometres. There is an opening and closing odometer reading, for the year, and the details of all business travel. Private travel is not needed unless one wishes to prove private travel. Even so it is possible to prove this by calculating the total difference of opening, closing and business kilometres.

Right of Use of Motor Vehicle

A vehicle owned by a business and used by employees will result in a tax on right of use of vehicle. This applies to both the employees and owners of companies. The right of use is a taxable perk. The perk is calculated as follows: 

• 3.5% of the determined value of the vehicle at the time of the commencement of use. This includes the purchase price including VAT and the value of the maintenance plan. This value excludes finance charges;
• If the determined value includes a maintenance plan then 3.25% may be used;
• No reduction can be claimed if the employee carries the cost of fuel and maintenance.
• Where the company leases the vehicle, the retail market value of the vehicle, including VAT will be used.

The perk is then taxed at 80% or if the personal use of the business will be less than 20%, then the perk can be taxed at 20%.

The right of use of vehicle does not apply to pool vehicles.

Make sure you:

• Keep a log book of all business travel;
• Check that the correct tax is being applied;
• Don't forget to tax the fringe benefit, right of use of motor vehicle.