12 SARS Calculation of Income Tax
Logbook
From March 2010, every employee who is paid a travel allowance should keep a logbook if he wants to claim a deduction from income tax of his actual business kilometers on assessment.
A logbook must be kept if the employee wants to claim his business travel deduction against the code 3701 income value of the travel allowance on assessment.
If there is no logbook, in principle the employee will be assessed on the portion of the travel allowance that was not taxed in the payroll and will have to pay the assessed amount to SARS. This will result in some very unhappy employees paying the payroll office a visit, so remind your employees regularly of the consequences of not keeping a logbook.
Logbooks are now required for company cars, travel allowances, and for code 3702 travel reimbursements.
Income Tax Calculation
Since 2002, all ‘general’ allowances have been taxed in full, and with very few exceptions, an employee is not allowed to claim business expenses against the allowance on which he has been taxed.
The travel allowance is one of these exceptions and is afforded special treatment in the legislation.
The income value of the travel allowance must be reported on the employee’s tax certificate against code 3701 and is the starting point of the income tax calculation on assessment.
The calculation of income tax on travel allowances follows.
1. The income value of the travel allowance must be reported on tax certificates under code 3701 (plus code 3702 travel reimbursements if present – see Chapter 5) on the tax certificate
2. SARS calculates the business travel expense deduction by multiplying the business kilometers from the logbook by the Cost Scale rate/km
3. Any excess of the business travel deduction value above the code 3701 travel allowance income value is discarded, highlighting the negative result of estimating a value for the travel allowance that is too low
4. Any excess of the code 3701 travel allowance income value above the business travel deduction value is added to the taxable income on which income tax is calculated.
It is important to note that SARS calculates the Cost Scale rate/km in the same way as the employer – the only difference is that the employer uses estimated total kilometers, while SARS uses the actual total kilometers from the employee’s logbook.
This means that differences between the PAYE and the income tax amounts are because of differences between the estimated kilometers and the actual kilometers for the year.