Chapter 4. Travel Allowances
4.1 Travel Allowance Principles
The principles discussed at the start of Chapter 2 apply to travel allowances.
Of the three business travel compensation options, the reason why employers choose travel allowances is because the administration effort needed to pay a fixed travel allowance amount every month appears to be very low.
As we will see, this is not always true.
Travel Allowance Tax Calculation Principles
As far as taxable income and income tax at the end of the tax year is concerned, based on the vehicle’s determined value and the actual business kilometers recorded in the employee’s logbook, the business travel portion of the travel allowance is not taxable income – only the private travel portion of the allowance is taxable income.
The same tax principle applies to remuneration and PAYE, except that the business and private travel portions of the travel allowance are estimated using the ‘80%/20%’ inclusion rule discussed in a section beneath, therefore the PAYE calculated is only as accurate as the estimate of the remuneration value.
The important concept of ‘private travel’ was discussed in Chapter 2 of this workbook, as well as the widely used Cost Scale table.
4.2 Summary of the Main Aspects of Travel Allowances
The main aspects of travel allowances are summarised below.
1. The employer –
a. Grants travel allowances
b. May only grant travel allowances to ‘qualifying’ employees
c. Must estimate a ‘realistic’ value for the travel allowance, usually at the start of the tax year
d. Must re-estimate the travel allowance when the job circumstances or the car change
e. Must include 80% or 20% of the estimated travel allowance as remuneration
f. Must re-estimate the 80% or 20% inclusion rate when the job or travel circumstances change
g. Must add any company petrol card expenses for fuel as an additional travel allowance amount
h. Must report 100% of the income value of the travel allowance on the tax certificate under code 3701.

2. Employees will only qualify for a travel allowance –
a. If they travel for business purposes
b. In a motor vehicle that is privately owned i.e., not company owned, and
c. If they have a valid driver’s licence.

3. The employee –
a. Should assist the employer to estimate a realistic value for the travel allowance
b. Should record his daily business kilometers in a logbook
c. Should claim business travel expenses on assessment by submitting his logbook details.
Some of the above points are discussed in more detail in the sections that follow.
4.3 Employees that qualify for a Travel Allowance
An employer may not grant a travel allowance to an employee who does not travel for business purposes.
If the business travel activity is very low (eg. an admin clerk who must go to the employer’s bank once a week), as long as the employee qualifies, a travel allowance can be paid. But its value must be low because the business kilometers are low.
Further a travel allowance may only be granted by an employer if the employee uses a motor vehicle for the business travel that is not owned or rented by the employer. The car does not have to be owned by the employee – it can belong to a friend or a family member.
See the discussion at the start of Chapter 2 regarding financial assistance by the employer towards the employee’s private travel expenses for getting from home to work and back again such as bus fares, taxi fares, etc. This would simply be regarded as additional salary and taxed in full.
It is possible to grant a travel allowance to an employee who already has the use of a company car, but the law changes the nature of the payment from being a travel allowance, to normal remuneration (fully taxable, no deduction for business travel expenses allowed).
This special case is discussed in the chapter dealing with company cars.
4.4 The Employer Grants the Travel Allowance
In an earlier chapter of this workbook, the SARS interpretation of an allowance was discussed. One of the key characteristics of an allowance is that it is granted by the employer.
In other words, the employee can’t demand that the employer pays him a travel allowance. The employer is in control and makes the decision. The only limit to the employer’s power in this respect is that legally he can only grant a travel allowance to a ‘qualifying’ employee as discussed above.
Once the employer has exercised his right to grant a travel allowance, the legislation places certain duties and responsibilities on the employer to administer and tax the travel allowance in a legally compliant manner.
The responsibility starts with the requirement that the employer must estimate a realistic value for the travel allowance. To do this, the employer must know the determined value of the vehicle being used for the travel.
4.5 Determined Value for Travel Allowances
The determined value of a motor vehicle is the starting point of the calculation of the Cost Scale rate per kilometer and is defined in a regulation to the Income Tax Act (included in the appendix to this manual).
In non-legalese language, the ‘determined value’ of the motor vehicle is specified as follows –
1. The original cost to the employee if the motor vehicle was purchased by the employee under a bona fide agreement of sale or exchange, including any VAT but excluding any finance charge or interest payable by the employee, or
2. The cash value as contemplated in the definition of “cash value” in section 1 of the Value-Added Tax Act if the motor vehicle was purchased under an ‘instalment credit agreement’, or
3. In any other case, the market value of that motor vehicle at the time when the employee first obtained the vehicle or the right to use it, plus the VAT which would have been payable if the employee had purchased the vehicle at that time at a price equal to that market value.
Note that in contrast to the determined value of a company car that can be depreciated, the determined value of a motor vehicle for a travel allowance is not depreciated over the years. The original purchase cost of the vehicle (whether new or second hand) is never changed.
4.6 Remuneration Inclusion Percentage
How to calculate an estimated travel allowance amount is discussed in the sections that follow. This is an income value – a remuneration value is needed for PAYE calculation purposes.
To achieve this, the ‘80%/20%’ inclusion rate rules were added to the Fourth Schedule definition of remuneration from March 2010 to calculate the remuneration portion of the income value of the travel allowance.
In simple terms, 80% of the income value of a travel allowance is remuneration unless the employer is satisfied that at least 80 per cent of the travel for a year of assessment is business travel, then 20% of the income value of the travel allowance is remuneration.
This is discussed in more detail at the end of the calculation sections.
4.7 Travel Allowance Estimate Concerns
One of the biggest difficulties facing employers who grant travel allowances is how to estimate a value for the travel allowance that will keep them out of trouble with SARS and at the same time be fair to the employee.
The estimated travel allowance amount can potentially fall into on the following three groups:
1. Excessive value: High risk to the employer, and an unacceptable practice
2. Low value: No risk to the employer; but potentially penalises the employee
3. In-between value: Travel allowance ‘heaven’ … the best of both worlds.
Group 1: An ‘Excessive’ value for the travel allowance
Historically when the private and business portions of the travel were seen to be fairly equal in value, this was reflected in lower rates of inclusion of the travel allowance into remuneration in the Fourth Schedule. As recently as the 2009/10 tax year, the split between the private and business portions of the travel allowance was 60% private, 40% business. In earlier years, these two rates were even closer to one another.
The various methods of estimating the travel allowance value took these ratios into account, and because the private and business percentages were fairly close to one another, the results of these calculations were acceptable. However, with the default private portion now being 80%, the travel allowance should not be estimated according to a formula based on the Fourth Schedule ratios.
These old methods should be discarded, and a new approach taken. Any method that results in an excessively high value being estimated for the travel allowance value must be avoided like the plague.
If SARS believe that the travel allowance value is ‘excessive’, they can change its nature from being a travel allowance to what SARS sees it to be – a disguised salary. They will rain unpaid taxes, penalties, and interest down on the employer – an unpleasant and expensive experience.
There is no definition of ‘excessive’ – it will be determined by a ‘factual examination’.
Group 2: A ‘low’ value for the travel allowance
If asked to give guidelines on how to estimate the value of a travel allowance, SARS will refer to the Interpretation Note that deals with allowances that was discussed earlier in this workbook.
This interpretation states that the value of a (travel) allowance should reflect the expected business-related (travel) value. This conservative approach by SARS is to be expected – their duty is to protect the fiscus and there is nothing wrong with that.

An allowance is an amount of money granted by an employer to an employee in circumstances where the employer is certain that the employee will incur business-related expenditure on behalf of the employer, but where the employee is not obliged to prove or account for the business expenditure to the employer.

The amount of the allowance is based on the expected business-related expenditure.

Note that the interpretation states that the value of the allowance must be based on the expected business-related expenditure. It does not state that it must be equal to the expected business-related expenditure. This seems to allow the employer some wiggle room to increase the value.
Then the Fourth Schedule mandatory 80%/20% inclusion requirement anticipates that the estimated business value of the allowance must consist of a business portion plus a private portion. This is contradictory.
If the estimated travel allowance value is equal to (or very close to) the business travel value, then the only way to have a private portion is to add an amount for private travel on top of the business travel amount.
But then the question is: How much should be added?
Another complication is that if the value of the travel allowance is restricted to the estimated business travel value reported on the tax certificate under code 3701, SARS will only deduct business travel expenses on assessment up to that value of the travel allowance.
If the value of the business travel expense exceeds the travel allowance value, the employee will lose out on the deduction from taxable income of the excess amount. The income tax calculation is discussed in Chapter 6.
Lastly, if the travel allowance value is equal to the business travel value, it means that the employee will be taxed in the payroll on 80% (or 20%) of the employer’s business travel expense. This is unfair to the employee.
The employee (if he keeps a logbook) will get the tax back at the end of the tax year in a refund, but that could be 6 months into the next tax year. The employee’s cash flow will suffer in the meantime.
Group 3: A ‘realistic’ value for the travel allowance
To avoid the dangers of paying a travel allowance that is too high or too low, the employer should marginally increase the estimated business travel value of the travel allowance, while ensuring that the increased value does not move too close to the red line area of being excessively high.
Can a travel allowance value legally include an amount in respect of private use?
The travel allowance provisions in the Fourth Schedule provide for an 80% or 20% private travel portion, thereby ‘acknowledging’ that the travel allowance can include a private travel portion in addition to the business portion.
From this follows that if a travel allowance is estimated to consist of both a private and a business portion, SARS should not find fault with this principle. They can only find fault with the total value if they believe it to be excessive.
The private portion is taxed during the tax year, and if the estimate is reasonably accurate, there will only be minor differences between the employees’ tax and the income tax value at the end of the tax year.
This is fair to both the employee and to SARS.
The question then is – what is a ‘marginal’ increase and how can it be safely calculated?
4.8 Estimate of a Travel Allowance amount
Calculate a Travel Allowance based on ‘Actual’ costs
Before discussing the usual method of calculating a ‘deemed’ travel allowance amount, note that it is possible to calculate a travel allowance based on an ‘actual’ rate per kilometer.
Section 8(1)(b)(iiiA)(bb) – phwew! – provides that the employee can calculate the actual rate per kilometer as long as the actual cost of ownership and running costs of a motor vehicle are recorded, and that the cost of wear and tear and finance charges must be calculated on R665 000 if the cost of the motor vehicle exceeds R665 000 ((this looks like an error – it should have been amended to be R800,000).
In my opinion, it is far easier to calculate a determined rate per kilometer by using the SARS ‘Cost Scale’ table for this purpose.
This method is recommended and is described in the sections that follow.
Calculation of a ‘Determined’ Rate per kilometer from the Cost Scale table
The following is the SARS Cost Scale table and the Prescribed rate/km that are effective from 1 March 2023.

 
Table: SARS ‘Cost Scale’ Table for 2023/24 (effective from 1 March 2023)
Determined Value
of the Vehicle Fixed Cost Fuel Cost Maintenance Cost
(R pa) (c/km) (c/km)
0 – R100 000 R33 760 141,5 43,8
R100 001 – R200 000 R60 329 158,0 54,8
R200 001 – R300 000 R86 958 171,7 60,4
R300 001 – R400 000 R110 554 184,6 65,9
R400 001 – R500 000 R134 150 197,6 77,5
R500 001 – R600 000 R158 856 226,6 91,0
R600 001 – R700 000 R183 611 230,5 102,1
R700 001 – R800 000 R209 685 234,3 113,1
R800 001 and above R209 685 234,3 113,1
Prescribed Rate/km R4,64 / km
Use the determined value of the motor vehicle to establish the correct row in the table.
The determined rate per kilometre is the sum of –
1. The fixed cost from the table divided by the total (private plus business) kilometers estimated to be travelled in the vehicle during the year ahead
2. If 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
3. The fuel cost from the table if the employee has paid for all the fuel (private plus business travel)
4. The maintenance cost from the table if the employee has paid for all maintenance costs including the cost of repairs, servicing, lubrication, and tyres.
The Prescribed rate per kilometre
Section 4 (the ‘Simplified Method’) of the ‘Fixed Rate’ regulation that provides the ‘Cost Scale’ table, specifies a standard ‘Prescribed’ rate per kilometer that for 2023/24 is R4,64 per kilometer.
This is known as the ‘Prescribed’ rate.
The regulation gives the employee the option to use either the Cost Scale rate per kilometer or the Prescribed rate, and presumably, the employee will always choose the rate per kilometer with the highest value. This because the travel allowance will then have a bigger value, meaning more cash in the payslip for the employee and also allowing a larger business travel expense to be deducted before it is limited by the value of the travel allowance.
In my opinion, employers should give serious consideration to using the Prescribed rate per kilometer to estimate travel allowances and to calculate the travel reimbursement claims instead of the Cost Scale rate per kilometer.
The benefits are:
1. Employers must recalculate the Cost Scale rate whenever the car or the anticipated kilometers change.
2. A standard rate simplifies the administration
3. All employees are treated equally
The best would be to specify the use of the Prescribed rate in the company’s travel policy. Then the employees are informed, and they would be in a position to object if they want to.
Calculation of the Income value of a Travel allowance (in words)
The following steps describe in words how to estimate and calculate a travel allowance amount that is ‘closely’ aligned to the business travel value.
1. Estimate the number of kilometers that will be travelled in the coming year for –
a. Business travel (supplied or estimated by either the employee or the employer)
b. Private travel (supplied by the employee)
c. Total travel (total of business plus private travel).

2. The employee must confirm or provide the determined value of the vehicle used for the travel.

3. Use the SARS Cost Scale table to calculate the cost rate/km for the car as follows –
a. Use the car’s determined value to position it in the correct row in the Cost Scale table
b. Divide the ‘Fixed Cost’ value by the total number of km (step 1c above) to get a R/km
c. If the employee pays for the full cost of fuel and/or the full cost of maintenance, add the fuel R/km and/or the maintenance R/km to the fixed cost R/km from step 3b to get the ‘determined’ R/km rate

4. Calculate the travel allowance value by multiplying the determined rate/km (3c above) by –
a. Business kilometers (1a above) to calculate the business value for the travel allowance.
b. Then decide whether or not to increase this business value marginally by applying a marginal percentage increase such as 10% to provide for a private travel portion.
A few comments regarding the estimate of kilometers in point 1 above –
• Employers can estimate the business kilometers for the new year by using last year’s business kilometers, or a job of similar nature, then adjust for differences between this and last year, or between the jobs.
• Employees should assist the employer to estimate private kilometers (the employer may not know that the employee who lived 2 kilometers from the workplace last year, now lives 40 kilometers away.
• If a travel reimbursement is paid in addition to a travel allowance, the estimated value of the travel allowance must be reduced by the estimated value of the reimbursements. Alternatively, the number of business kilometers used for the travel allowance estimation can be reduced by the number of kilometers that are expected to be reimbursed.
The estimation of a realistic travel allowance value is best done at the start of each new tax year, but it is recommended that it is re-estimated at least once during the year. However, if the employee uses a different car, or if the nature of the job changes, the travel allowance value must be changed to reflect the new circumstances.
Example of a Calculation of the Travel Allowance amount
The following table gives a step-by-step illustration of the calculation of a travel allowance.
For this example, the following amounts have been used:
• Determined value: R228 000
• Estimated business kilometers: 20 000 km
• Estimated private kilometers: 10 000 km
• Estimated total kilometers: 30 000 km

 
Table: Example of the Calculation of a ‘Realistic’ Travel Allowance Amount
Step-by-step calculation of a travel allowance amount
Description Calculation Answer
1 Determined value of the motor vehicle Supplied by Employee R300 000 1
2 Fixed cost of car as per table based on the determined value Use Table R86 958 2
3 Estimate the total kilometers for the year (business plus private) Supplied by Employee 30 000 km 3
4 Fixed Cost per kilometre Calculate (2/3) R2,899 4
5 Fuel cost as per table (only if all fuel is paid for by the employee) Use table (convert to Rand) R1,717 5
6 Maintenance cost as per table (only if paid for by the employee) Use table (convert to Rand) R0,604 6
7 Determined rate/km (* increase value up to R3,05 if less) Calculate (4+5+6) R5,220 7
8 Estimated Business kilometers for the year From Employer / Employee 20 000 km 8
9 Travel allowance value (business portion only) Calculate (7 x 8) R104 400 9
10 Marginally increase the business travel allowance value Small % increase 10% 10
11 Travel allowance value (business plus marginal increase) Increase 9 by % value in 10) R114 840 11
12 Estimated Total kilometers for the year From Employer / Employee 30 000 km 12
13 Travel allowance value (business plus private portion) Calculate (7 x 12) R156 600 13
From this example can be seen that there are potentially three values for the travel allowance –
1. Step 9: Business value only R104 400
2. Step11: Business value plus marginal increase (10%) R114 840
3. Step 13: Business value plus private value R156 600.
Which of these three travel allowance values –
• are legally correct? [Step 9 is legal; Step 11 appears to be legal]
• Can potentially reduce the employee’s tax deduction? [Step 9]
• Can potentially put the employer at risk? [Step 13].
From this can be seen that the flip side of the discretion that the employer is given in estimating a travel allowance value is the risk of getting it wrong.
Examples of Rates per Kilometer from the Cost Scale table
Across the following scenarios, if the total number of kilometers travelled in the full tax year is a constant 30 000 km, then the calculated rate/km for vehicles with different determined values, varies as follows –
Determined value R100,000 R200,000 R400,000 R600,000 R800,000
Fixed cost (R/pa) R33 760 R30 329 R110 554 R158 856 R209 685
Total kilometers travelled 30,000 30,000 30,000 30,000 30,000
Fixed cost (R/km) R1.125 R2.011 R3.685 R5.295 R6.990
Fuel cost (R/km) R1.415 R1.584 R1.846 R2.266 R2.343
Maintenance cost (R/km) R0.438 R0.548 R0.659 R0.910 R1.131
Cost Scale (R/km) R2.98 R4.14 R6.19 R8.47 R10.46
Taking R200,000 as a representative determined value, and 30,000 km per year as a fair average, then a Cost Scale rate/km of R4,14 or thereabouts will be widely used. This is just below the 2024 Prescribed rate/km of R4,64.
In the following table, all of the scenarios have a determined value of R800,000.
It is interesting to note the significant difference that the total number of kilometers makes to the calculated determined rate/km value.
Determined value R800,000 R800,000 R800,000 R800,000 R800,000
Fixed cost (R/pa) R209 685 R209 685 R209 685 R209 685 R209 685
Total kilometers travelled 10,000 20,000 30,000 40,000 50,000
Fixed cost (R/km) R20.969 R10.484 R6.990 R5.242 R4.194
Fuel cost (R/km) R2.343 R2.343 R2.343 R2.434 R2.343
Maintenance cost (R/km) R1.131 R1.131 R1.131 R1.131 R1.131
Cost Scale (R/km) R24.44 R13.96 R10.46 R8.72 R7.67
There are a limited number of employees who travel more than 50,000 km per year, but it is unlikely that an employee will travel less than 10,000 kilometers per year.
Therefore, the determined rate of R24,44 per km for a motor vehicle of determined value R800,000 is in practical terms probably the highest rate/km that can be determined from the 2023/24 Cost Scale table.