INTERPRETATION NOTE 14 (Issue 5) (2 of 3)

5.4 Deductions from travelling allowances and advances

5.4.1 General
An allowance or advance that is granted by a principal to a recipient for travelling on business or for the use of a private motor vehicle for the principal’s business purposes is commonly known as a “travel allowance”. A “motor vehicle” is a road vehicle powered by a motor or engine, especially an internal-combustion engine.17 This would include a motorcycle.
17 Concise Oxford English Dictionary. Edited by Catherine Soanes, Angus Stevenson. 11th Edition Revised. New York: Oxford University Press, 2006. Collins English Dictionary. 3rd Edition. Glasgow: Harper Collins, 1991.
18 That is, actual business kilometres travelled × an employer agreed rate per kilometre.
19 As contemplated in section 8(1)(b)(ii) and (iii).
20 As defined in paragraph 1 of the Fourth Schedule.
21 Under section 7B(2)(a) read with paragraph (b) of the definition of “variable remuneration” in section 7B(1).
The allowance or advance must be included in the recipient’s taxable income to the extent that it is not expended on travelling on business (see 5.1).
In the context of travel, an allowance or advance includes both a travel allowance and a travel reimbursement5.2). 18 (see
A recipient who receives a travel allowance and a travel reimbursement must add the amount of the travel reimbursement to the amount of the allowance and calculate the allowable deduction for the number of business kilometres travelled.
A recipient who only receives a travel reimbursement must still determine the allowable deduction because, depending on the facts, the rate at which the recipient was actually reimbursed may exceed the allowable deduction. The allowable deduction is determined by applying the actual cost, deemed rate per kilometre method or the specified rate per kilometre (see 5.4.3 and 5.4.4).
The amount of the allowable deduction which may be deducted from the travel allowance, advance or reimbursement has two components, namely, the business kilometres travelled (see 5.4.2) and the expenditure per kilometre. Expenditure per kilometre may be determined using actual costs (see 5.4.3) or according to the deemed rate per kilometre as determined by the Minister of Finance by notice in the Government Gazette (see 5.4.4).
Amount to be included in taxable income = amount of the allowance, advance or reimbursement received − (business kilometres travelled × expenditure per kilometre)
The amount of the allowable deduction is always limited to the amount of the allowance.
Travel reimbursements19 paid by an employer20 are deemed to accrue to a recipient on the date that they are paid.21 Often, business travel undertaken in one year of assessment was only reimbursed to an employee in the following year of assessment. This created the problem that taxpayers who undertook business mileage in, for example, February of a calendar year, but who received their travel reimbursement in March of that calendar year, had the result that the mileage was undertaken in a different year of assessment to that in which the travel allowance accrued. No deduction was thus allowed for this mileage.
To resolve this anomaly, the law was amended with effect from 15 January 2020.22 Any distance travelled for business purposes after that date is deemed to have taken place in the year of assessment that the travel reimbursement is paid.23
22 The date of promulgation of the Taxation Laws Amendment Act 34 of 2019.
23 The provisos to sections 8(1)(b)(ii) and (iii).
24 Effective for years of assessment commencing on or after 1 March 2011.
The motor vehicle the recipient uses is often owned by the recipient but this is not always the case, for example, it could be a “company car” which the employer has provided to an employee. The allowable deduction against an allowance or advance which is granted to the recipient for a motor vehicle that the recipient has been granted the right to use under paragraph 7 of the Seventh Schedule (that is, a “company car”) is Rnil.24
Section 8(1)(b)(iv) was inserted into the Act in 1990 to address schemes designed to inappropriately benefit from the lower rate of tax effectively levied on taxable benefits at that time. It provides that if an employee, the employee’s spouse or the employee’s child has directly or indirectly let a vehicle to an employer or the employer’s associated institution, the sum of the rental and expenses paid by the employer for the vehicle is treated as an allowance for the employee and not as rental income for the lessor (who may or may not be the employer) and the employee is deemed not to have received a taxable benefit from the employer under the Seventh Schedule (right of use of an employer-provided asset).

5.4.2 Kilometres
Taxpayers wishing to claim the cost of business travel must base their claim on the actual business kilometres travelled and are required to prove the business kilometres travelled to the satisfaction of the Commissioner.
In order to do so recipients must keep accurate written records of their business travel and include, at a minimum, the following information:
• The odometer reading on the first day of the year of assessment.
• The odometer reading on the last day of the year of assessment.
• For all business travel –
the date of the travel;
the kilometres travelled; and
business travel details (to and from where, and reason for trip).

Written records of this information are often referred to as a logbook. It is not necessary to record details of private travel (for example, that the recipient went to the movies on “x” date and the distance travelled was “y” kilometres) or daily opening and closing odometer readings. A logbook which taxpayers may use is available on the SARS website.

Reason for trip
The “reason for trip” is a crucial element of a logbook. SARS will not be in a position to fulfil its obligation under the law to test the validity of a travel claim where the “reason for trip” is recorded in a logbook as simply “meeting”, “client”, “business” or similar vague particulars.
The information that taxpayers provide under “reason for trip” must therefore be sufficient to allow SARS to verify that the travel undertaken was for business purposes and qualifies for a deduction. At the very least, this should include the following information:
• Specific details of why the travel was undertaken, for example “presentation to board”, “meeting with supplier” or “delivery to client”.
• Details of the person with or for whom the engagement was undertaken, for example, “head office of ABC Ltd”, “Mr A at LMN Supplies (Pty) Ltd” or “delivery to client Mr Z”.
• If contact details are available these should also be provided.

As much detail should be provided as possible. In many cases, this will permit SARS to verify travel claims without having to request additional information from a taxpayer or to disallow travel claims because of insufficient information that was provided to verify such claims.
The information required to be provided under “reason for trip” is not confidential information. In the same way that taxpayers claiming a deduction for expenditure incurred under, for example, section 11(a) could be required to provide relevant information such as client invoices, client contracts, etc., so too should taxpayers provide full details of business travel to SARS should they wish to claim a travel deduction. It bears pointing out that SARS is bound by the confidentiality provisions of Chapter 6 of the TA Act.
Business and private travel
The accurate determination of what constitutes business travel is critically important and is determined by looking at the purpose of the trip and assessing whether it is for business purposes or private purposes.
In this regard, section 8(1)(b)(i) provides that travelling between a recipient’s place of residence and place of employment or business is private travel. The location of a recipient’s place of employment or place of business is a factual enquiry. In relation to an employee’s place of employment, it is the place at which the employee must render services as agreed with the employer. The term “place of employment” applies when the recipient of the allowance or advance is an employee and the term “place of business” applies when the recipient is a holder of an office.
Travel between the place of employment or business and the place of residence is regarded as private travel even if the travel takes place after normal or during extended working hours.
Examples of private travel include, where –
• a tax consultant employed by a law firm in Johannesburg travels from home in Pretoria to the law firm’s office, the travel between home and the office;
• an assistant employed to work as a shop assistant at a V&A Waterfront store in Cape Town (the employer has stores all over South Africa, including other stores in the Cape Town area) travels from a friend’s house to the V&A Waterfront store, the travel between the friend’s house and the store; and
• an assistant employed to work as a shop assistant at a V&A Waterfront store in Cape Town for two days a week and the Canal Walk Store in Cape Town for three days a week (the employer has stores situated all over South Africa, including other stores in the Cape Town area) travels from home to a store, the travel between home and the Canal Walk Store, or the V&A Waterfront store as appropriate.

Examples of business travel include, where –
• an employee whose place of employment is in Johannesburg leaves the office at lunch time to attend a business conference in Krugersdorp, the travel between the office and the conference venue in Krugersdorp;
• a consultant stops to see a client en route to his place of employment, the travel between home and the client’s premises and the travel after the meeting from the client’s premises to the office;
• a sales assistant normally works at an employer’s store in the V&A Waterfront, Cape Town travels directly from home to the employer’s store in Pretoria to assist with an annual stock count, the travel between home in Cape Town and Pretoria;
• an employee located in Kimberley is required to assist a client in Upington over a five-day period, the travel from Kimberley to Upington;25 and
• a computer programmer, is allowed to work from home on a permanent basis (that is, the home office is the place of employment) travels to a client’s premises to discuss system requirements and functionality, the travel from the home office to the clients’ premises.

25 The employee will also incur additional business travel while in Upington, for example, travelling from the guesthouse to the client’s premises and travelling to the shops to get supplies.
26 Calculated rate per kilometre = total expenditure / total kilometres travelled.
The examples listed above are merely guidelines to explain the principles involved. Each case must be examined and assessed based on its own unique set of facts.

5.4.3 Expenditure per kilometre – actual costs
In order to be able to use actual costs in determining the amount of the allowable deduction, recipients will need to perform an acceptable calculation based on accurate data. An acceptable “expenditure per kilometre” calculation will contain two elements, namely, total kilometres travelled5.4.2) to determine the allowable deduction. 26 and the total expenditure incurred by the recipient.27 The calculated rate per kilometre would then be multiplied by the business kilometres travelled (see
Recipients must retain supporting documentation in order to prove, if requested, the accuracy of the calculation and the data used.

The recipient’s use of the motor vehicle to travel must have given rise to the expenditure. In ITC 173127 a lease termination payment was held to be related to the termination of the lease and the acquisition of ownership of the vehicle and not to have been an expense incurred as a result of travelling. It accordingly did not fall within the provisions of section 8(1)(a) and (b).
27 64 SATC 395.
28 This value is effective from years of assessment commencing on or after 1 March 2020, under section 5 of the Rates and Monetary Amounts and Amendment of Revenue Laws Act 22 of 2020.
Examples of the type of expenditure which may be included are wear-and-tear or lease payments, fuel, oil, repairs and maintenance, car licence, insurance and finance charges.
The expenditure related to finance charges and depreciation are based on actual costs subject to limitations as set out in section 8(1)(b)(iiiA). Section 8(1)(b)(iiiA) provides –
• that in relation to a leased vehicle, the lease payments included may not exceed the fixed cost element determined in the Government Gazette for the particular category of vehicle (see 5.4.4); and
• in all other cases –
wear-and-tear must be determined over a seven-year period from the original date of acquisition by the recipient;
the cost of the vehicle must be limited to R665 000;28 and
the finance charges incurred for any debt incurred for the purchase must be limited to an amount which would have been incurred had the original debt been R665 000.29

Example 10 – Travelling deductions if record of actual expenses was kept

Facts:
S received a travel allowance of R96 000 during the 2021 year of assessment. A total of 23 881 kilometres was travelled during the year, of which 7 338 kilometres was for business travel. S purchased a motor vehicle on 1 March 2016 and it has a value of R353 248. S kept proof of the following travelling expenses:

Fuel and oil R 26 910
Maintenance and repairs R 4 422
Insurance and licence fees R 15 327
Wear-and-tear (R353 248 / 7 years) R 50 464
Finance charges R 32 880
Total costs R 130 003

Result:

Travel allowance received R 96 000
The deduction for business travel will be calculated as follows:
(Total costs / total kilometres) × business kilometres
= (R130 003 / 23 881 km) × 7 338 km R 39 946
S is entitled to the full deduction of R39 946 against the travel allowance and must include R56 054 (R96 000 − R39 946) in taxable income.

5.4.4 Expenditure per kilometre – deemed rate per kilometre
The deemed rate per kilometre, which is determined by the Minister of Finance by notice in the Government Gazette, has the following three components:
• A fixed component – this component represents fixed costs, for example, finance charges, insurance, depreciation and licensing. The rand value per the cost scale table (explained below) must be divided by the total kilometres (private and business) travelled in the year of assessment and must also be apportioned if the vehicle was only used for business purposes for part of the year.

The word “used” must be given its ordinary grammatical meaning, taking into account the context in which it appears and consistent with the purpose of the legislation.29 The starting point is the meaning ascribed in dictionaries. The word “used” is the past tense of the verb “use”, whose meanings include “take, hold or deploy as a means of achieving something; take or consume (an amount) from a limited supply; treat in a particular way;”30 as well as “to put into service or action; employ for a given purpose; to consume, expend, or exhaust; the ability, right or permission to use; the occasion to use;”.31
29 Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA), approved by the Constitutional Court in Municipal Employees Pension Fund v Natal Joint Municipal Pension Fund (Superannuation) and Others 2018 (2) BCLR 157 (CC); see also Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others 2004 (4) SA 490 (CC).
30 Concise Oxford English Dictionary. Edited by Catherine Soanes, Angus Stevenson. 11th Edition Revised. New York: Oxford University Press, 2006.
31 Collins English Dictionary. 3rd Edition. Glasgow: Harper Collins, 1991.
Contextually the word “used” relates to the period that a motor vehicle is used during a year of assessment for business purposes, as compared to the period that it is used during that same period for private purposes. The purpose of the provision in which the word “used” appears, is to determine a fair apportionment of fixed costs between the business and private use of a motor vehicle.
Taking these factors into account, the word “used” means the period that the vehicle was put into service or action during which the taxpayer had the ability to use the vehicle, that is, when it was available for the taxpayer to use. The period of business use will thus commence from the date that an employee becomes required to use a vehicle for business purposes, and has a vehicle available for such purpose. A vehicle therefore does not need to be actually
used every day during a particular period, in order for that day to qualify as a period of “use”.
Apportionment is based on the days in a full year; in other words it is irrelevant if a day is a business day, a Saturday, Sunday or public holiday.
Example 11 – Travelling deduction if vehicle was available for use for business for a portion of the year of assessment
Facts:
M owned a private vehicle for the entire 2021 year of assessment. The vehicle originally cost M R125 000, including VAT, but excluding interest and finance charges. M was employed from 1 March 2018 as an administrative office assistant, and was not required to travel for business purposes.
On 1 August 2020, M received a promotion and was appointed as a sales consultant. M’s job required that he travel for business purposes, and he accordingly received a travel allowance of R5 000 per month. On average, M travelled for business purposes three times per week. The other two week days, M generally worked at the office. On weekends, M only travelled for private purposes.
Result:
M may not claim the full fixed cost on assessment. The fixed cost must be apportioned for only the period that the vehicle was used for business purposes. The vehicle was brought into use for business purposes on 1 August 2020.
The fixed cost in the 2021 year of assessment for a vehicle that originally cost R125 000 was R55 894, and must be apportioned as follows:
1 August 2020 to 28 February 2021 = 212 days
(212 / 365) × R55 894 = R32 464
The fixed cost for purposes of calculating M’s deduction is R32 464.
• A fuel cost component – this component may only be included if the recipient bears the full cost of fuel. Employees who are provided with employer-owned petrol or garage cards are regarded as having borne the full cost of fuel if the full amount expended on that card during the year of assessment is included in their travel allowance and is taxed as remuneration in the manner set out in 5.1.
• A maintenance cost component – this component may only be included if the recipient bears the full cost of maintenance. A recipient will be considered to bear the full cost of maintenance if the recipient takes out a maintenance plan either as a top-up or add-on plan after the acquisition of the vehicle and is responsible for the cost of that maintenance plan and all maintenance costs not covered by the maintenance plan (for example, top-up fluids, tyres or maintenance required as a result of abuse of the motor vehicle). A maintenance cost component may not be claimed if the vehicle was the subject of a maintenance plan when it was acquired by the recipient as the value of the vehicle (see below) will effectively include an element for maintenance.
The three components are included in a cost scale table and the recipient must select the appropriate figures based on the value of the vehicle. The value of the vehicle generally includes VAT but excludes interest – refer to Annexure B for detail. The value of the vehicle includes the cost of a maintenance plan when the vehicle is the subject of a maintenance plan, that is if the maintenance plan commences at the same time the motor vehicle is acquired by the recipient irrespective of whether the cost of the plan is separately invoiced or included in the vehicle purchase price.
The cost scale table which is applicable for the 2020/2021 year of assessment, that is, from 1 March 2020 to 28 February 2021, is included in Annexure B. The tables applicable to the other years of assessment (including the 2021/2022 year of assessment) are available on the SARS website. As these tables change periodically, taxpayers should review the effective date of the particular notice to ensure the correct costs are applied to the relevant years of assessment.
As an alternative to calculating the deemed rate according to the cost scale table, the notice (see Annexure B) provides that taxpayers may choose to use a simplified method to calculate the travel deduction. The simplified method uses a specified fixed rate (currently R3,8232 per kilometre for the 2021/2022 year of assessment),33 provided the recipient received no other compensation in the form of a travel allowance or reimbursement (other than for parking and toll fees).
32 Paragraph 4 of Government Notice 174 in Government Gazette 44229 of 5 March 2021.
33 This rate changes periodically.
34 12 000km for the 2018 year of assessment; and 8 000km for years prior to 2018.
35 Paragraph 4 of Government Notice 170 in Government Gazette 41473 of 2 March 2018.
Before the 2019 year of assessment, the simplified method only applied if a prescribed mileage limit was not exceeded.34 The mileage limit was removed with effect from 1 March 2018,35 and the simplified method now applies to unlimited business kilometres.

Example 12 – Travelling deduction if no record of actual expenses was kept

Facts:
J received a travel allowance of R36 000 for the year of assessment ending 28 February 2021. J’s opening odometer reading on 1 March 2020 was 17 005 kilometres and the closing odometer reading on 28 February 2021 was 48 091 kilometres. J kept an accurate logbook detailing all of the business trips taken, 14 115 kilometres were travelled for business purposes. No records of actual costs relating to the motor vehicle were kept. J pays all the fuel and maintenance costs. The value of J’s vehicle is R180 000 and he wishes to claim a travel deduction for the 2021 year of assessment.

Result:
Travel allowance received R36 000
The business portion of the expenses incurred in travelling on business will be determined as follows:
Opening kilometres: (01/03/2020) 17 005
Closing kilometres: (28/02/2021) 48 091
Total kilometres travelled 31 086
The fixed cost for the vehicle amounting to R180 000 is R55 894.
The fixed cost amount must be divided by the total distance travelled (both private and business):
R55 894 / 31 086 km × 100 / 1 179,8c
Fuel cost per kilometre 118,1c
Maintenance cost per kilometre 46,8c
Total cost per kilometre 344,7c
14 115 business kilometres × 344,7c × 1 / 100 R48 654
The travel deduction of R48 654 is limited to the travelling allowance received, being R36 000. The excess of R12 654 is disregarded. Rnil is included in taxable income.

Example 13 – Travelling deduction if no record of actual expenses was kept and the employee receives a travel allowance and a reimbursive travel claim

Facts:
J received a travel allowance of R36 000 for the year of assessment ending 28 February 2021. J’s employer also reimburses him at a rate of R4,25 per kilometre. J’s opening odometer reading on 1 March 2020 was 17 005 kilometres and closing odometer reading on 28 February 2021 was 48 091 kilometres. J kept an accurate logbook detailing all of his business trips, 8 200 kilometres were travelled for business purposes. No records of actual costs relating to J’s motor vehicle were kept. The value of his motor vehicle is R180 000 and he wishes to claim a travel deduction for the 2021 year of assessment.

Result:
The business portion of the expenses incurred in travelling on business will be determined as follows:
Travel allowance received R 36 000
Reimbursive claim (8 200 km × R4,25) R 34 850
Total R 70 850
Opening kilometres: (01/03/2020) 17 005
Closing kilometres: (28/02/2021) 48 091
Total kilometres travelled 31 086
The fixed cost for the vehicle amounting to R180 000 is R55 894.
The fixed cost amount must be divided by the total distance travelled (both private and business):
R55 894 / 31 086 km × 100 / 1 179,8c
Fuel cost per kilometre 118,1c
Maintenance cost per kilometre 46,8c
Total cost per kilometre 344,7c

8 200 business kilometres × 344,7c × 1 / 100 R 28 265
Amount included in taxable income (R70 850 − R28 265) R 42 585

5.4.5 Expenditure incurred on outsourced travel
In recent years, it has become more common for persons who travel for business purposes to use transportation other than their own vehicles. The most common method uses mobile application-based ridesharing platforms (apps) that match passengers looking for transportation, with drivers with vehicles for hire.36
36 Common examples of ridesharing apps used in South Africa are the Uber and Bolt apps.
37 Taxpayers in these circumstances will need to consider the interaction between sections 8(1), 11(a), 23(m) and 23B.
38 Section 102 of the TA Act.
Section 8(1)(a)(i)(aa), read with section 8(1)(b)(i), permit the deduction of expenditure incurred on this form of travelling, provided that the travel was undertaken for business and not private purposes, and the taxpayer is able to provide sufficient evidence to show that the travel was undertaken for business purposes.
Most app-based ridesharing platforms provide a receipt to a passenger upon completion of the trip. Typically, these receipts show the time, commencement and termination point, distance travelled, and cost, in respect of the trip.
However, this data is not sufficient for a taxpayer to claim a deduction, because it does not explain the “reason for trip” requirement as set out in 5.4.2. A taxpayer will thus still be required to maintain detailed records of each instance of business travel that records the “reason for trip” as set out in 5.4.2. The principles explained in 5.4.2 regarding what constitutes business travel and what constitutes private travel will apply equally to ridesharing trips.
The availability of a deduction for expenditure incurred on outsourced travel costs is not limited to travel undertaken using ridesharing apps. Meter-taxis may be used for business travel, or commuter rail systems such as the Gautrain, or other forms of public transport. In order to claim a travel deduction for such travel, the information set out in 5.4.2 regarding the record of business travel is also required. A taxpayer would not be able to prove an entitlement to a deduction if the transport providers do not provide the taxpayer with proof of expenditure incurred.

5.5 Deduction under section 11(a)
Section 23(m) generally prohibits employees and office holders from claiming a deduction for business-related travel expenditure under section 11(a).
There are limited circumstances, for example, an agent or representative whose remuneration is normally derived mainly from commissions based on sales or turnover, who are not automatically prohibited by section 23(m) from deducting business-related travel expenditure under section 11(a).37
Taxpayers who are not subject to section 8(1), for example, an independent contractor (see 5.1.1), may seek to claim business-related travel expenditure under section 11(a). In this regard the calculation of the deduction available, assuming all the requirements of section 11(a) are met, must be based on actual expenditure and actual business kilometres travelled. Taxpayers seeking to claim a deduction bear the onus of proving that the amount is deductible5.4.2 for details on what SARS considers to be accurate written records of business kilometres travelled.) 38 and, if required, will need to produce proof of the expenditure incurred and the business kilometres travelled. (See
was withdrawn with effect from years of assessment commencing on or after 1 March 2010.
A method which merely regards,for example,20% oftotal travelling expenses asprivate is not acceptable. Practice Note2439waswithdrawn with effectfrom years ofassessmentcommencing on or after 1March 2010.
6.Employees’ tax

6.1General

All allowances or advances, exceptforthose discussed in 6.2and 6.3,40required to be included in taxable incomeundersection8(1)(a)(i) mustbeincluded in remuneration for the purposes of employees’ tax.
Reimbursement of actual expenditure is not subject to employees’ tax, unless the rulesfor a valid taxfreereimbursement as set out in5.2are notmet,in which case theamount of the reimbursement must be included in an employee’s remuneration.
6.2Subsistence allowances

Subsistence allowances are generally not subjectto employees’tax. However,ifa subsistenceallowance oradvance ispaidorgranted toanemployee during anymonth,andthat employee had not spent the anticipated time away from his or herusual placeofresidence onbusinessbytheendofthemonth followingthe month in which the allowance or advance was paid orgranted,it willbe subject to employees’ tax if theemployee has not refunded such amountto the employer.41Thisensures thatsubsistence allowances or advances are notused as a form of salary structuring byemployersanddonotresultinemployeesreceiving atax-freeallowance which isnotprovided for by legislation.
The amount of the allowance must be included in remuneration in the month followingthe month in which the allowance oradvance waspaid ifthe employee didnotspendthe time away from home asanticipated.