INTERPRETATION NOTE 14 (Issue 5) (3 of 3)

6.3Travel allowance and reimbursive travelclaims

6.3.1Travel allowance

The definition ofthe term“remuneration”42was amended with effectfrom 1March 2010 to include 80%ofthe travel allowance or advance as remuneration. However,shouldan employerbesatisfied that at least 80%ofthe use ofthe motor vehicle for ayear of assessment will be for business purposes,only 20% ofthe travel allowance or advance is included as remuneration and is subjectto employees’ tax.43
This does notmean that only a portion (80%or 20%, as the case may be) is subjectto tax.Thefullallowanceoradvance ispotentiallytaxable ifthetaxpayerisunable toclaimasufficientdeduction forbusinesstravelwhen submittinghisorherincometax return.It is onlyfor the purposes of employees’ tax that 80%or 20%, as the case maybe, is included in remuneration.
39“Income Tax–Private Useofa MotorVehicle”(issued on 8August1994)–thisnote previouslydealtwith the determination ofthe private use of a motor vehicle.
40The employees’taxconsequencesarealsodifferentforthe holderofpublicoffice allowances–
these are not discussed in this Note.
41Paragraph(bA)(ii) of the definition of “remuneration” in paragraph1 of the Fourth Schedule.
42Paragraph1 of the FourthSchedule to the Act.
43Effective years of assessment commencing on or after 1March 2011.

Employers must be satisfied that at least 80% of the use of the vehicle is for business purposes when assessing whether 80% or 20% of the travel allowance or advance should be included in “remuneration”. The word “satisfied” suggests that the employer must actively look into the facts of each employee’s circumstances and objectively weigh up and determine whether or not the employee should qualify.
Employers must satisfy themselves that employees will use their vehicles for at least 80% business use. This can be done by –
• regularly reviewing employees’ logbooks which detail business and private travel; and
• taking into consideration changes in the roles or functions of the employees.

Example 14 – Determination of the travelling allowance inclusion rate by the employer

Facts:
M is paid a travel allowance of R5 000 per month by her employer, JKL (Pty) Ltd. Under the employment duties M is required to provide services to all clients of JKL (Pty) Ltd who are based in Gauteng. During the full 2020 year of assessment M maintained a detailed logbook, which disclosed M had travelled a total of 61 015 kilometres, of which 53 092 kilometres were for business travel. M and the financial director of JKL (Pty) Ltd agree that M’s functions will remain much the same during the 2021 year of assessment.

Result:
Determination of expected percentage business travel:
53 092 km / 61 015 km = 87%
87% of M’s travel in the 2020 year of assessment was for business purposes. In March 2020 (the start of the 2021 year of assessment), JKL (Pty) Ltd is likely to be satisfied that at least 80% of the use of M’s motor vehicle for the 2021 year of assessment will be for business purposes based on the logbook for the 2020 year of assessment and the fact that M’s job profile and responsibilities are not expected to change.
Accordingly, only 20% of the travel allowance, that is, R1 000 (R5 000 × 20%) may be included in M’s remuneration for employees’ tax purposes. The full allowance of R5 000, less any allowable deduction, will need to be included in M’s taxable income when M submits an income tax return.

The method set out above is not the only method that an employer can use to assess whether an employee will travel more than 80% for business purposes. There may be other acceptable methods that employers can use to satisfy themselves of the 80% requirement based on the particular employee’s circumstances. SARS will, if applicable, consider whether other methods applied by an employee demonstrate that the employer did in fact properly apply its mind to the particular case. For example, with new employees or employees who change job positions, a prior year logbook may not necessarily be appropriate.

If employees’ tax has been withheld on 20% of a recipient’s travel allowance and circumstances change such that the employer realises that the employee will no longer use the vehicle more than 80% for business purposes for the year of assessment, from the month in which the circumstances change, employees’ tax must be withheld on 80% of a recipient’s travel allowance. The adjustment does not need to be made retrospectively; the change must merely be made from the month during which the employer reasonably became aware of the change in the employee’s circumstances.

6.3.2 Reimbursive travel claim
Before 1 March 2018, reimbursive travel claims were not subject to the deduction or withholding of employees’ tax.44 They were required to be included in taxable income, subject to the deduction of any allowable deductions, when the recipient submitted his or her income tax return.
44 Under the discretion exercised by the Commissioner under paragraph 2(1) of the Fourth Schedule.
45 Tax Administration Laws Amendment Act 13 of 2017. The exercise of the Commissioner’s discretion was simultaneously withdrawn.
With effect from 1 March 2018, certain travel reimbursements are included in remuneration.45 The definition of “remuneration” was amended to include the amount of reimbursements paid in excess of the rate per kilometre specified in the simplified method under the notice.
Only the amount that exceeds the prescribed rate must be included in remuneration. The portion of the reimbursement that is below the prescribed rate is not remuneration, and is not subject to the deduction or withholding of employees’ tax. Reimbursements below the prescribed rate are also not remuneration.
It should be noted that the 80% / 20% rule does not apply to the excess of travel reimbursements. The total amount of the excess must be included in remuneration, even if more than 80% of the employee’s or office holder’s travel is for business purposes.

Example 15 – Reimbursement in excess of prescribed rate per kilometre

Facts:
T, a sales consultant, travelled 7 892 kilometres for business purposes during March 2020, and was reimbursed by his employer at a rate of R4,25 per kilometre.

Result:
The amount to be included in remuneration will be determined as follows:
Total business kilometres travelled for the month (7 892km)
Total reimbursement received (7 892km × R4,25) R 33 541
Total business kilometres × (reimbursive rate − rate per kilometre)
7 892km × (R4,25 − R3,98*) R 2 130
Only R2 130 of the total reimbursement of R33 541 must thus be included in remuneration, being 100% of the portion of the reimbursement paid or granted by the employer that exceeds the allowance based on the rate per kilometre.
* the rate per kilometre applicable for the 2021 year of assessment.

7. Conclusion
Section 8(1)(a) –
• deals with all allowances and advances paid by a “principal” to a “recipient“ (for example, travel, subsistence, public office, cell phone and housing allowances);
• provides that all such allowances and advances must be included in the recipient’s taxable income to the extent that they were not expended as specified in section 8(1); and
• provides that, if reimbursements meet the qualifying requirements, they are not included in taxable income.

Section 8(1) only permits a deduction for expenditure incurred in relation to travelling on business, expenditure incurred for accommodation, meals and incidental costs while an office holder or employee is obliged to spend at least one night away from his or her usual place of residence as a result of business or official purposes and expenditure incurred by reason of the duties attendant upon public office. The method of calculating the amount of the allowable deduction is specified in section 8(1). This Note discussed the methods of calculating the allowable deduction which, in the case of the travel allowance, includes actual business kilometres and an actual rate per kilometre or a deemed rate per kilometre as determined by the Minister of Finance in the Government Gazette. The allowable deduction for subsistence expenses may, depending on the circumstances, be based on a deemed rate per the Government Gazette or on actual expenditure.
Employers are generally required to calculate and withhold employees’ tax on a monthly basis on all advances and allowances. With effect from 1 March 2011 employers must include 80% of the travel allowance in remuneration. However, should an employer be satisfied that at least 80% of the use of the motor vehicle for a year of assessment will be for business purposes, only 20% of the travel allowance or advance is included as remuneration and is subject to employees’ tax. The portion of travel reimbursements that exceed the prescribed rate per kilometre determined by the Minister by notice in the Government Gazette must be included in remuneration. Reimbursements below the prescribed rate are not subject to the deduction or withholding of employees’ tax. Subsistence allowances are generally not subject to employees’ tax. The amount of the subsistence allowance must be included in remuneration in the month following the month in which the allowance was paid to an employee if the employee receives a subsistence allowance but does not spend the anticipated time away from home.

Leveraged Legal Products
SOUTH AFRICAN REVENUE SERVICE
Date of 1st issue : 27 March 2003
Date of 2nd issue : 8 June 2008
Date of 3rd issue : 20 March 2013
Date of 4th issue : 18 March 2019

Annexure A – The law
Section 8
8. Certain amounts to be included in income or taxable income.—(1)(a)(i) There shall be included in the taxable income of any person (hereinafter referred to as the “recipient”) for any year of assessment any amount which has been paid or granted during that year by his or her principal as an allowance or advance, excluding any portion of any allowance or advance to the extent that the allowance or advance or a portion of the allowance or advance is exempt from normal tax under section 10(1) or has actually been expended by that recipient—
(aa) on travelling on business, as contemplated in paragraph (b), unless an allowance or advance has been granted by an employer in respect of the use of a motor vehicle as contemplated in paragraph 7 of the Seventh Schedule;
(bb) on any accommodation, meals and other incidental costs, as contemplated in paragraph (c), while such recipient is by reason of the duties of his or her office or employment obliged to spend at least one night away from his or her usual place of residence in the Republic; or
(cc) by reason of the duties attendant upon his or her office, as contemplated in paragraph (d).
(ii) There shall not be included in the taxable income of a person in terms of the provisions of paragraph (a)(i), any amount paid or granted by a principal in reimbursement of, or as an advance for, any expenditure incurred or to be incurred by the recipient—
(aa) (A) on the instruction of his or her principal; or
(B) where the recipient is allowed by his or her principal to incur expenditure on meals and other incidental costs while such recipient is by reason of the duties of his or her office or employment obliged to spend a part of a day away from his or her usual place of work or employment, not exceeding an amount determined by way of notice in the Gazette,
in the furtherance of the trade of that principal; and
(bb) where that recipient must produce proof to that principal that such expenditure was wholly incurred as aforesaid and must account to that principal for that expenditure:
Provided that where that expenditure was incurred to acquire any asset, the ownership in that asset must vest in that principal.
(iii) For the purposes of this paragraph, “principal” in relation to a recipient includes his or her employer or the authority, company, body or other organisation in relation to which any office is held, or any associated institution, as defined in the Seventh Schedule, in relation to such employer, authority, company, body or organisation.
(iv) The provisions of this paragraph shall not apply in respect of any amount paid or granted as an allowance or advance that is received by or accrued to a person in respect of—
(aa) the holding of a public office by that person as contemplated in section 9(2)(g); or
(bb) services rendered or work or labour performed by that person as contemplated in section 9(2)(h),
if that person is stationed outside the Republic and that amount is attributable to services rendered by that person outside the Republic.
(b) For the purposes of paragraph (a)(i)(aa)—
(i) any allowance or advance in respect of transport expenses shall, to the extent to which such allowance or advance has been expended by the recipient on private travelling (including travelling between his or her place of residence and his or her place of employment or business or any other travelling done for his or her private or domestic purposes), be deemed not to have been actually expended on travelling on business;
(ii) subject to the provisions of subparagraph (iii), where such allowance or advance has been paid to the recipient in order that it may be utilized for defraying expenditure in respect of any motor vehicle used by the recipient, the portion of the allowance expended by the recipient during the year of assessment for business purposes shall, unless an acceptable calculation based on accurate data is furnished by the recipient, be deemed to be an amount calculated by applying the rate per kilometre determined in the manner prescribed by the Minister of Finance by notice in the Gazette for the category of vehicle used, on a distance travelled during the said year for business purposes (other than private travelling as contemplated in subparagraph (i)): Provided that where an allowance or advance is deemed to have accrued under section 7B to the recipient in the year of assessment during which that allowance or advance is paid, the distance travelled for business purposes in respect of which that allowance or advance is received shall be deemed to have been travelled during the year in which that allowance or advance is paid
(iii) where such allowance or advance is based on the actual distance travelled by the recipient in using a motor vehicle on business (excluding the said private travelling), or such actual distance is proved to the satisfaction of the Commissioner to have been travelled by the recipient, the amount expended by the recipient on such business travelling shall, unless the contrary appears, be deemed to be an amount determined on such actual distance at the rate per kilometre fixed by the Minister of Finance by notice in the Gazette for the category of vehicle used: Provided that where an allowance or advance is deemed to have accrued under section 7B to the recipient in the year of assessment during which that allowance or advance is paid, the distance travelled for business purposes in respect of which that allowance or advance is received shall be deemed to have been travelled during the year in which that allowance or advance is paid;
(iiiA) where the portion of the allowance or advance which is claimed by the recipient to be actually expended is calculated based on accurate data furnished by the recipient in respect of any vehicle—
(aa) in the case of a vehicle that is being leased, the total amount of payments in respect of that lease may not in any year of assessment exceed an amount of the fixed cost determined by the Minister in the notice contemplated in subparagraph (ii), for the category of vehicle used;
(bb) in any other case—
(A) the wear and tear of that vehicle must be determined over a period of seven years from the date of original acquisition by that recipient and the cost of the vehicle must for this purpose be limited to R665 000, or such other amount determined by the Minister by notice in the Gazette; and
(B) the finance charges in respect of any debt incurred in respect of the purchase of that vehicle must be limited to an amount which would have been incurred had the original debt been R665 000, or such other amount determined by the Minister in terms of subitem (A);
(iv) where any motor vehicle which is owned or leased by an employee, his spouse or his child, whether directly or indirectly by virtue of an interest in a company or trust or otherwise, has been let to the employer or any associated institution in relation to the employer, the sum of the rental paid by the employer or associated institution and any expenditure defrayed by the employer or associated institution in respect of the vehicle, shall be deemed to be an allowance paid to the employee in respect of transport expenses, and in such case the said rental shall for the purposes of this Act (excluding this paragraph) be deemed not to have been received by or to have accrued to the lessor of such motor vehicle, and for the purposes of paragraph 2(b) of the Seventh Schedule such employee shall be deemed not to have been granted the right to use such motor vehicle.
(c) A recipient shall, for the purposes of paragraph (a)(i)(bb), be deemed to have actually expended,—
(i) where that recipient proves to the Commissioner the amount of the expenses incurred by him or her in respect of accommodation, meals or other incidental costs (other than any amount of expenditure borne by the employer otherwise than by way of payment or granting of the allowance), the amount so actually incurred but limited to the amount of the allowance or advance paid or granted to meet those expenses; or
(ii) for each day or part of a day in the period during which that recipient is absent from his or her usual place of residence, such amount in respect of meals and other incidental costs, or incidental costs only, as the Commissioner may determine for a country or region for the relevant year of assessment by way of notice in the Gazette, but limited to the amount of the allowance paid or granted to meet those expenses: Provided that this subparagraph does not apply to the extent that—
(aa) the employer has borne the expenses (otherwise than by way of granting the allowance or advance) in respect of which the allowance was paid or granted for that day or part of that day; or
(bb) the recipient has proved to the Commissioner any amount of actual expenditure in respect of meals or incidental costs for that day or part of that day, as contemplated in subparagraph (i).

Section 11
11. General deductions allowed in determination of taxable income.—For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person so derived—
(a) expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature;

Definition of “remuneration” in paragraph 1 of the Fourth Schedule
“remuneration” means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, including—
(cA) 80 per cent of the amount of any allowance or advance in respect of transport expenses referred to in section 8(1)(b), other than any such allowance or advance contemplated in section 8(1)(b)(iii) that is based on the actual distance travelled by the recipient: Provided that where the employer is satisfied that at least 80 per cent of the use of the motor vehicle for a year of assessment will be for business purposes, then only 20 per cent of the amount of such allowance or advance must be included;
(cB) …
(cC) 100 per cent of so much of the amount paid or granted as an allowance or advance referred to in section 8(1)(b)(iii) as exceeds the amount determined by applying the rate per kilometre for the simplified method in the notice fixing the rate per kilometre under section 8(1)(b)(ii) and (iii) to the actual distance travelled;

Annexure B – Table of rate per kilometre46
46 Government Notice 271 in Government Gazette 43073 of 6 March 2020.
1. Definition
In this Schedule, “value” in relation to a motor vehicle used by the recipient of an allowance as contemplated in section 8(1)(b)(ii) and (iii) of the Income Tax Act, 1962, means—
(a) where that motor vehicle (not being a motor vehicle in respect of which paragraph (b)(ii) of this definition applies) was acquired by that recipient under a bona fide agreement of sale or exchange concluded by parties dealing at arm’s length, the original cost thereof to him/her, including any value-added tax but excluding any finance charge or interest payable by him/her in respect of the acquisition thereof;
(b) where that motor vehicle—
(i) is held by that recipient under a lease contemplated in paragraph (b) of the definition of “instalment credit agreement” in section 1 of the Value-Added Tax Act, 1991; or
(ii) was held by him/her under such a lease and the ownership thereof was acquired by him/her on the termination of the lease,
the cash value thereof as contemplated in the definition of “cash value” in section 1 of the Value-Added Tax Act; or
(c) in any other case, the market value of that motor vehicle at the time when that recipient first obtained the vehicle or the right of use thereof, plus an amount equal to value added tax which would have been payable in respect of the purchase of the vehicle had it been purchased by the recipient at that time at a price equal to that market value.
2. Determination of rate per kilometre
The rate per kilometre referred to in section 8(1)(b)(ii) and (iii) must, subject to the provisions of paragraph 4, be determined in accordance with the cost scale set out in paragraph 3, and must be the sum of—
(a) the fixed cost divided by the total distance in kilometres (for both private and business purposes) shown to have been travelled in the vehicle during the year of assessment: Provided that, where the vehicle has been used for business purposes during a period in that year which is less than the full period of that year, the fixed cost must be an amount which bears to the fixed cost the same ratio as the period of use for business purposes bears to 365 days;
(b) where the recipient of the allowance has borne the full cost of the fuel used in the vehicle, the fuel cost; and
(c) where that recipient has borne the full cost of maintaining the vehicle (including the cost of repairs, servicing, lubrication and tyres), the maintenance cost.

Where the value of the vehicle does not exceed R95 000:
• Fixed cost (Rand) – 31 332
• Fuel cost (c/km) – 105.8
• Maintenance cost (c/km) – 37.4

Where the value of the vehicle exceeds R95 000, but does not exceed R190 000:
• Fixed cost (Rand) – 55 894
• Fuel cost (c/km) – 118.1
• Maintenance cost (c/km) – 46.8

Where the value of the vehicle exceeds R190 000, but does not exceed R285 000:
• Fixed cost (Rand) – 80 539
• Fuel cost (c/km) – 128.3
• Maintenance cost (c/km) – 51.6
•
Where the value of the vehicle exceeds R285 000, but does not exceed R380 000:
• Fixed cost (Rand) – 102 211
• Fuel cost (c/km) – 138.0
• Maintenance cost (c/km) – 56.4

Where the value of the vehicle exceeds R380 000, but does not exceed R475 000:
• Fixed cost (Rand) – 123 955
• Fuel cost (c/km) – 147.7
• Maintenance cost (c/km) – 66.2

Where the value of the vehicle exceeds R475 000, but does not exceed R570 000:
• Fixed cost (Rand) – 146 753
• Fuel cost (c/km) – 169.4
• Maintenance cost (c/km) – 77.8

Where the value of the vehicle exceeds R570 000, but does not exceed R665 000:
• Fixed cost (Rand) – 169 552
• Fuel cost (c/km) – 175.1
• Maintenance cost (c/km) – 96.6

Where the value of the vehicle exceeds R665 000:
• Fixed cost (Rand) – 169 552
• Fuel cost (c/km) – 175.1
• Maintenance cost (c/km) – 96.6

4. Simplified method
Where—
(a) the provisions of section 8(1)(b)(iii) are applicable in respect of the recipient of an allowance or advance; and
(b) no other compensation in the form of a further allowance or reimbursement (other than for parking or toll fees) is payable by the employer to that recipient,
that rate per kilometre is, at the option of the recipient, equal to 398 cents per kilometre.
5. Effective date
The rate per kilometre determined in terms of this Schedule applies in respect of years of assessment commencing on or after 1 March 2020.