4. SARS Interpretation of a Reimbursement
SARS interprets the concept of a reimbursement as follows: “A reimbursement of business-related expenditure occurs when an employee has incurred and paid for business-related expenses on behalf of an employer without having had the benefit of an allowance or an advance, and is subsequently reimbursed for the exact expenditure by the employer after having proved and accounted for the expenditure to the employer.”
This interpretation of reimbursements in general applies equally to the special category of travel reimbursements.
Travel Reimbursement vs Travel Allowance
The underlying principles for a travel reimbursement are similar to those for a travel allowance, but the method of calculation of the compensation, the taxation thereof, and the tax certificate reporting rules, differ radically.
The purpose of a travel reimbursement is to compensate an employee for travelling for business purposes in any motor vehicle that is privately owned – it is not to assist the employee to purchase a motor vehicle, nor is it to reimburse an employee for private travel expenses.
Reimbursements of Business travel expenses using Public Transport
A travel reimbursement is calculated by multiplying the number of kilometers travelled by a rate per kilometer, and there are rules that specify how it must be taxed and reported on a tax certificate.
The public transport vehicle can be a motor vehicle, a bus, a taxi, or a train, and the travel could be for either private or business purposes.
If the employer assists the employee financially for travel in public transport, then if the travel purpose is:
1. Business: Proof of the travel expense would allow the employer to pay a general reimbursement
2. Private: This financial assistance would be taxable with no deduction possible, reported as either an additional salary (code 3601) or preferably as a taxable general allowance (code 3713).
Employees that qualify for a travel Reimbursement
Travel reimbursements may only be paid by an employer to an employee who uses a privately-owned motor vehicle for business travel (and who has a valid driver’s licence).
The car does not have to be owned by the employee – it can belong to a friend or a family member.
The Employer’s Travel Reimbursement policy
One of the advantages to the employer of using travel reimbursements is that the employer has control over the rate/km used to calculate the reimbursement. The employer can decide to use any rate/km that he likes, or for that matter, a range of rates for different categories of employees.
In this way, the employer has control over the cost of business travel in his organisation.
Having decided on the rates per km that he is prepared to pay, the employer then has a duty to administer the travel reimbursements correctly in terms of the law.