The following is news flash 2024/02 published by the PAGSA on January 29, 2024 regarding SARS and UIF: Data Collaboration.

EMPLOYMENT DATA SHARING DISCUSSIONS BETWEEN SARS AND UIF

The PAGSA takes note of the Media Statement issued by the Democratic Alliance on 25 January 2024, the preamble of which states as follows:
“The Democratic Alliance (DA) commends the Ministry of Employment and Labour’s decision, for following our sound advice, to draw up a joint implementation agreement on the sharing of employment data between the South African Revenue Service (SARS) and the Unemployment Insurance Fund (UIF).”

The PAGSA has for many years proposed a collaboration of this nature and is fully in support of this project.

According to the media statement, 98% of monthly UIF contributions are paid to SARS by employers via their payroll systems.

Employers and payroll systems also provide SARS with detailed employer and employee data that is reported on the biannual tax certificates. It is now in the public domain that employers and payroll systems will in future (at this stage from 1 March 2026) submit tax certificates to SARS monthly.

Monthly tax certificate information will enable SARS to extract employer and employee data and share it monthly with the Unemployment Insurance Fund. Employer administration will be reduced by submitting employee data only once per month to SARS, and this will also assist the Fund to improve its “overall efficiency and performance”.

The benefits to all parties are obvious.

At this early stage, our hope is that the SARS/UIF collaboration project is extended to include the Compensation Fund.

The groundwork for this has already been done some years back in a presentation by the PAGSA to the Compensation Fund authorities that outlined the benefits of replacing the poorly understood concept of ‘COID earnings’ by the Fourth Schedule definition of remuneration.

The Department of Employment and Labour has taken our proposal forward in the COID Amendment Act that replaces ‘earnings’ in the COID Act with the Fourth Schedule definition of remuneration, with some exclusions.

We are waiting for an effective date to be published in a Gazette to put the COID Amendment Act into operation.

The PAGSA supports these projects and will assist wherever possible to make them a success.

The following is a news flash 2024/01 published by the PAGSA on January 18, 2024 regarding the 2024 Budget Review date.

2024 BUDGET REVIEW DATE

The Budget Review is normally presented on the last Wednesday of February every year.

However, in a year when the Budget Review date is very close to 1st March, there is very little time in which payroll suppliers can implement those requirements of the budget that are legally effective from 1st March.

When this situation has arisen in the past, we have requested that an exception be made to present the Budget on the second last Wednesday of February, and our request has been acceded to (no doubt with the support of other parties).

The latest PARLIAMENTARY PROGRAMME FRAMEWORK FOR 2024 has been issued and confirms that the 2024 Budget Review will be presented on Wednesday 21 February 2024.

The following is a news flash 2023/43 published by the PAGSA on December 8, 2023 regarding the Tax Directives: Interface specification version 6.601

SARS TAX DIRECTIVES: INTERFACE SPECIFICATIONS VERSION 6.601
SARS has issued the below notice with regards to the changes to be implemented to the Tax Directive process.

SARS NOTICE

The South African Revenue Service (SARS) will implement enhancements to the Tax Directives process as indicated in the IBIR-006 Tax Directives Interface Specification Version 6.601. The trade testing dates are still to be confirmed and the software is scheduled to be implemented by the end of March 2024.

Stakeholders will receive communication concerning the exact dates for trade testing and the implementation date closer to the time. Please note that the enhancements planned relating to IBR-006 Tax Directives Interface Specification Version 6.601, do not include any changes about the Two Pot System. The changes concerning the Two Pot System will be communicated in due time.

The Tax Directives Interface Specification is available on the SARS website www.sars.gov.za and you are encouraged to review it before testing.

Please follow these steps to submit test files:

Step 1: Before testing can commence, you will need to email 10 taxpayer reference numbers to [email protected] to ensure the numbers are active. In the email subject line, use “Tax reference numbers for Trade Testing”. A maximum of 10 taxpayer reference numbers will be allowed.

Step 2: You will be notified via the same email address to confirm when testing may commence.

For trade testing queries please email [email protected]

The IBR-006 Tax Directive Interface Specification Version 6.601 can be found by following this link: https://www.sars.gov.za/ibir-006-rev-6-20/

The following is a news flash 2023/42 published by the PAGSA on November 22, 2023 regarding the RECONSIDERATION OF THE POSTPONEMENT OF THE EFFECTIVE DATE OF THE TWO-POT RETIREMENT

RECONSIDERATION OF THE POSTPONEMENT OF THE EFFECTIVE DATE OF THE TWO-POT RETIREMENT
SYSTEM
PAGSA Newsflash 2023-40 reported the proposal to postpone the effective date of the Two-pot Retirement System from 1 March 2024 to 1 March 2025. The postponement was requested by the retirement fund industry to give them more time to make the necessary changes to their systems, to train their staff, and to educate the fund members.

The financial press reported today (21 November 2023) that: “Parliament’s finance committee has gone against the advice of the National Treasury and the retirement industry in deciding the two-pot retirement system will be implemented March 1 2024.”

It seldom happens that the Finance Committee makes such a decision. My understanding is that the Minister of Finance must now decide whether to postpone the effective date or leave it as it is.

If the Minister does decide to revert to an effective date of 1 March 2024 (which I personally feel is unlikely and would put undue pressure on the retirement funds), the next question will be whether SARS will then reverse their decision to postpone the SARS Vision 2024 monthly tax certificate project from 1 March 2025 to 1 March 2026 as this postponement was made subsequent to the recent postponement of the Two-pot Retirement System to 1 March 2025.

Refer to PAGSA Newsflash 2023-41 for more details.

PAGSA Newsflashes are normally only issued when there is finality, but because of the financial press report today, in this case we felt it better to explain the situation and make PAGSA members aware of the fact that it is possible that:
1. The Two-pot Retirement System is made effective from 1 March 2024 as originally proposed in the draft Revenue Laws Amendment Bill of June 2023
2. If this happens, SARS might then decide to revert the SARS Vision 2024 monthly tax certificate project to an effective date of 1 March 2025.

My estimate is that we should have finality on this matter within the next two weeks.

PAGSA Comments on the Monthly PAYE BRS Withdrawal

PAGSA members are reminded that all PAGSA members are welcome to submit comments on the SARS Monthly PAYE BRS version 1.0 that was issued recently into the public domain using email address [email protected].

These comments must reach us by Thursday 30 November 2023.

Irrespective of whether the Monthly Tax Certificate project is made effective from 1 March 2025 or 1 March 2026, this is an opportunity to finalise the monthly tax certificate requirements as best we can and as soon as possible.

This will assist all PAGSA members to plan their development schedules more efficiently and will also hopefully help to prevent last-minute unforeseen difficulties from cropping up in the final stages of the project.

4.10 Additional Travel allowance amounts
Only if the employee qualifies for a travel allowance, any payments made by the employer in respect of the running costs of the employee’s motor vehicle that are additional to the regular travel allowance amount paid in cash, must also be administered as a travel allowance, and taxed and administered as such in the payroll.
Items paid for by the employer that must be treated as a travel allowance are those expenses that are directly related to the running costs of the employee’s motor vehicle.
These include payments for fuel, maintenance, licence, insurance, and tyres, and they must be allocated in the payroll to the employee that has benefited and administered as an additional travel allowance amount.
Expense items that do not relate directly to the running costs of the motor vehicle (such as parking or toll fees), can be reimbursed by the employer as a normal business expense.
Being a reimbursement, they are not classified as a travel allowance (or a travel reimbursement), do not affect the tax calculation of the employee in any way, and are not reported on a tax certificate.
Examples follow of these ‘additional’ types of running cost expenses of the motor vehicle that are paid for by the employer –
• The employee’s petrol slips that are reimbursed by the employer
• The employee’s vehicle maintenance expenses that are reimbursed by the employer
• The use by the employee of the company’s garage or petrol card
• The employee is allowed to put in fuel on the company’s petrol account at a garage.
How the employer elects to pay for the running costs of the employee’s motor vehicle is not relevant – the point is that these payment must be taxed and administered as a travel allowance.
4.11 Payroll Calculation of Employees’ Tax
The above calculations result in an estimated income value of the travel allowance amount.
However, the travel allowance must have a remuneration value before the payroll can calculate employee’s tax.
In principle, because it is the private travel portion of the travel allowance value that is taxable, it is this portion of the income value of the travel allowance that should be classified as remuneration.
Not so easy in practice.
Remuneration Inclusion Percentage
To align the travel allowance and company car provisions, the same requirement to include 80% or 20% of the fringe benefit income value into remuneration that was discussed in Chapter 3 for company cars, is also applicable to travel allowances.
The ‘80%/20%’ inclusion rate requirement was 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 total travel for a year of assessment is business travel, then 20% of the income value of the travel allowance is remuneration.
Because of the importance of this ‘80%/20%’ requirement for the employees’ tax calculation, I have copied the following from the SARS Interpretation Note # 14 for your information:
“The definition of the term “remuneration” was amended with effect from 1 March 2010 to include 80% of the travel allowance or advance as 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.43
This does not mean that only a portion (80% or 20%, as the case may be) is subject to tax.
The full allowance or advance is potentially taxable if the taxpayer is unable to claim a sufficient deduction for business travel when submitting his or her income tax return. It is only for the purposes of employees’ tax that 80% or 20%, as the case may be, is included in remuneration.
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. “
The SARS Interpretation Note goes on to say (with my emphasis added):
“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.”
Restrictions
Note that the only permitted inclusion rates are 80% and 20%, and that the inclusion rate cannot be averaged over the tax year.
Which is strange, because if the ratio of business travel to total travel changes sufficiently to justify changing from (say) 80% to 20% from a certain point in time during the tax year, then if one analyses the result over the full year, an average inclusion rate has effectively been applied.
My understanding is that in practice the inclusion rate may not be less than 20% and not more than 80%, but it could change from month to month if each change is justified by the ratio of business travel to total travel.
Again, there are many companies and individuals requesting that they be allowed to include 100% of the travel allowance income value into remuneration, preferring a refund at the end of the tax year. While this was the practice for a number of years, it is not compliant with the legal requirement, and is no longer allowed.
My understanding is also that for travel allowances, a 100% inclusion results in an error when submitting tax certificates to SARS.
Impact on the Skills levy and UIF contributions
Fourth Schedule remuneration after the exclusion of some types of remuneration is the base on which the UIF contribution is calculated, and this base amount is further reduced by allowable deductions giving the ‘leviable amount’ that the Skills levy is calculated on.
The higher the remuneration value (i.e., 80%), the higher the cost to the employer of these statutory fees, limited only by the UIF threshold.
If there are many employees and the travel allowance amounts are large, the reduced cost of employment could tempt employers to put themselves at risk by applying the 20% inclusion rate when the rate should be 80% to reduce the remuneration value of the travel allowance.
4.12 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.
[As an aside, I would love to see the logbooks of those employees who have been granted a travel allowance and who don’t have a driver’s licence, let alone travel for business purposes in a privately-owned vehicle …  ]
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.
4.13 Compliance
The legislation gives the employer the right to grant a travel allowance to an employee, but along with this right there is a duty to do so in a manner that is compliant with the legislation.
It is important for employers to be aware of the main areas that are monitored to ensure compliance –
1. Only grant travel allowances to employees who travel for business purposes.
2. Estimate a realistic value for the travel allowance.
3. Include the correct estimated private travel portion of the travel allowance as remuneration (80% or 20%).
4.14 Risk to the Employer
What is the risk to the employer of being caught if the estimate of the travel allowance is too high, or if the 20% inclusion rate is used where the 80% rate should have been used?
It doesn’t take a rocket scientist to work out that the risk is high.
Firstly, if the employer’s estimated value of the travel allowance (code 3701 on the tax certificate) exceeds the actual business travel value (logbook) by a margin that SARS find unacceptable, a red flag can be raised to indicate that the employer over-estimated the value of the travel allowance.
Secondly, if the final income tax value is ‘considerably’ more than the employees’ tax value, and if the employee has a travel allowance (or a company car) and there is no other discernible reason for the under-withholding of employees’ tax, a ‘20% inclusion’ red flag can be raised.
I assume that at some stage in the future, SARS will be able to ‘red-flag’ employees who are paid a travel allowance and who don’t have a driver’s license.
‘Red flags’ equal ‘SARS audit’.
4.15 Travel allowance ‘Best Practice’ Tips
1. Never grant a travel allowance to an employee who does not travel in a privately owned vehicle for business purposes (and who does not have a valid driver’s license).

2. Your travel policy should put a duty on employees who are paid travel allowances to advise the payroll administrator if a different car is used to travel from the one used for the travel allowance estimate.

3. During the year, estimate the travel allowance value at the following mileposts –
a. Always at the start of a new tax year.
b. If the travel requirements for the job change.
c. If a new car is used for the travel.
d. At least once during the tax year.

4. The estimated travel allowance value –
a. Should not be excessively high
b. Should not be less than the estimated value of the business travel
c. Should be increased ‘marginally’ above the business travel value.

5. Keep a written record of how you estimated the travel allowance value in case of an audit

6. Keep a written record of why you decided on the 20% inclusion rate if you applied this rate

7. Remind your employees that they must keep a logbook

8. Don’t allow travel allowances to be structured as a component of a Cost to Company structure (if you do, ensure that the employee understands that he is effectively paying the employer’s business travel expense out of his package).
4.16 Last thoughts on Travel Allowances
Take a step back and think about the following.
1. To get a refund of any travel allowance PAYE owing to him, the employee must –
a. Keep a logbook for the whole year
b. Record his kilometre reading at the start and end of each tax year
c. Complete special sections in his ITR12 to claim a tax deduction
d. Wait 6 months into the next tax year to be refunded.

2. The employer must –
a. Estimate the travel allowance value at the start of every tax year for all employees that travel.
b. Re-estimate the travel allowance when the vehicle or the job circumstances change
c. Check the decision on the 80% or 20% inclusion rate of the travel allowance ‘regularly’
d. Change the remuneration inclusion rate (if necessary) when the nature of the job changes
e. If the travel allowance is included in a package, deal with the problems that result
f. Deal with employee queries on their travel allowances
g. Live with the risk of doing something wrong and the possibility of penalties …
I am sure that you will agree that this is somewhat crazy.
The two ways to return to a sane position is for:
1. National Treasury and SARS to phase out the travel allowance over a few years (as requested), OR
2. Employers must vote with their travel compensation policies by changing from travel allowances to travel reimbursements.
In general, it is worth considering replacing your allowances with reimbursements where it makes sense to you to do so.

3.7 Inclusion of the Fringe benefit amount into Remuneration
The income value of the fringe benefit is calculated by using one of the two formulas described above.
The legislation provides that business travel expenses can be claimed by the employee against the income value at the end of the tax year by submitting a logbook and/or proof of paying the full amount towards the running costs of the company car (explained in a section that follows).
However, the payroll needs a remuneration value to be able to calculate PAYE.
Confirming the trend to align the travel allowance and company car provisions as closely as possible, a seemingly small but very significant change was made to both the company car and the travel allowance requirements for the 2011/12 year of assessment.
From 1 March 2011, the the Fourth Schedule definition of remuneration gives the employer the option to include either 80% or 20% of the income value of the fringe benefit for the private use of a company car into remuneration as a provision towards the potential deduction of business travel expenses on assessment if the company car is used for business travel.
The ‘80%/20%’ provision is worded as follows:
“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”.
Inclusion rate of 80%
The default (and the ‘no risk’) option for the employer is to use the 80% inclusion rate.
However, if the 80% option is used for employees who travel ‘substantially’ for business purposes, the employee will be taxed on 80% of what is in the main the employer’s business travel expense. This is obviously unfair to the employee who must wait for about 6 months into the new tax year to get a refund of the tax owing to him.
In this case, the 20% inclusion rate can be applied if it the circumstances described in the ‘80%/20%’ provision above justify its application.
Inclusion rate of 20%
There is a risk to the employer (in terms of paragraph 5 of the Fourth Schedule) of applying the 20% option when it shouldn’t have been applied. If it turns out later that more than 20% of the travel was private travel and the employer should have applied the 80% inclusion rate, penalties, and interest on the untaxed 60% portion could be the unpleasant result.
The temptation to understate the remuneration value by incorrectly applying the 20% inclusion rate is increased by the fact that remuneration is not only used to calculate employees’ tax, but also for UIF contributions as well as for the skills development levy calculations, and at some stage in the future, the Compensation Fund’s annual Return of Earnings declaration as well.
To make an informed decision on which inclusion rate to use, the employer should check the private and the total kilometer values for a recent period of the year (the longer the period, the better). Calculate the private use percentage value by dividing the private kilometers by the total kilometers, and if the private ratio is less than 20%, then the 20% inclusion rate can be safely used.
The kilometer details and the calculation should be retained in case of a query by SARS.
Inclusion rate of 100%
Many employers (and employees) prefer to tax the fringe benefit in full in the payroll, knowing that a refund will be granted to the employee on assessment for any business travel expenses.
Some employees don’t want to bother with a logbook, or even if he does maintain a logbook, would prefer to get a refund on assessment rather than having to pay SARS at the end of the year.
Paragraph 2(2) of the Fourth Schedule provides that an employer may, at the written request of any employee, deduct or withhold additional amounts of employees’ tax from an employee’s remuneration.
This is known as ‘voluntary’ tax in the payroll world, and it is a very valuable option to be aware of.
Employees who want to avoid an assessment payment at the end of the year, can make use of this option to pay more PAYE during the year.
Alternatively, employees may request in writing that the employer includes 100% of the income value of the fringe benefit in their remuneration.
The SARS Interpretation Note # 72 confirms that if there is no business travel, then 100% of the income value can be included in remuneration for PAYE purposes as described above.
Note: This concession only applies to the company car fringe benefit, and not to travel allowances.
‘Average’ or ‘Retrospective’ calculations
The legislation provides for only two options –
1. 80% (the default or standard rate), or
2. 20% (the concession rate for employees who travel less than 20% for private purposes.
The employer is allowed to exercise his 80%/20% choice every month should the circumstances justify it. Normally the inclusion rate would not be changed so often, but two or three changes per year because of circumstances that change, are possible.
For example, a salesman on the road for the first 6 months of the year is promoted to sales manager for the last 6 months of the year and is then mostly desk bound. While traveling extensively for business in the first 6 months, a rate of 20% was applied. After becoming more desk-bound for the last 6 months, 80% was (correctly) used.
The mathematical result of 20% for 6 months and 80% for 6 months is that over the full year, an average inclusion rate of 50% was effectively applied.
However, remember the wording of the provision in the legislation that reads as follows –

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 such allowance or advance must be included:

This provision clearly states that either 80% or 20% must be applied for a year of assessment.
Applying the letter of the law as it stands would mean that the inclusion rate that is valid at the end of the tax year must be applied retrospectively back to the start of the tax year by the payroll.
However, a retrospective calculation will cause problems –
1. If the first portion of the year was taxed using 20%, and the remainder using 80%, it will mean that in the final tax year end calculation, tax on 80% for the period that was initially correctly taxed on 20% will be withheld in the last pay period of the year, resulting in cash flow problems for the employee.
2. If the first portion of the year was taxed using 80%, and the remainder using 20%, it will mean that in the final tax year end calculation, the extra tax for the initial period that was correctly calculated on 80% will be ‘illegally’ re-calculated using 20% in the final tax calculation, and the tax ‘given back’ to the employee.
This is an example of the law not contemplating the reality that employees’ tax is calculated during the tax year, and not in one big ‘grab’ at the end of the tax year.
Skills Development levy and UIF contributions
The Skills levy and the UIF contribution calculations are both based on Fourth Schedule remuneration.
The higher the remuneration value (i.e., 80% or 100%), the higher the cost to the employer of these statutory fees, limited only by the UIF threshold. These two statutory payments are a cost of employment for the employer, despite their social benefits.
If the numbers are large, lower employment costs might tempt employers to place themselves at risk by applying the 20% inclusion rate when the rate should be 80%.
3.8 Tax certificate reporting
The income value of the company car fringe benefit must be reported on tax certificates.
There are two codes to differentiate between a fringe benefit calculated for the private use of a company-owned motor vehicle and the private use of a vehicle rented by the company:
1. Code 3802: “Use of motor vehicle acquired by employer NOT via Operating Lease”
2. Code 3816: “Use of motor vehicle acquired by employer via Operating Lease”
This income value will be used as the starting value for the income tax calculation on assessment.
3.9 Fringe benefit ‘No value’ concessions
The fringe benefit value of the private use of a company car is deemed to be nil for two circumstances –
1. ‘Pool cars’ and
2. ‘Standby vehicles’.
‘Pool Cars’
The value of the private use of the motor vehicle by an employee is deemed to be nil (i.e., no fringe benefit value and no PAYE), if all three of the following conditions are satisfied:
1. The motor vehicle is used by employees in general for business travel and is not allocated to a particular employee, and
2. Private use of the motor vehicle by the employee is “infrequent or merely incidental to business use”, and
3. The motor vehicle is not normally kept at or near the residence of the employee when not in use outside of business hours.
‘Pool cars’ are vehicles owned or rented by the employer that are made available to employees in general (i.e., not allocated to one employee for exclusive use) for business travel during working hours.
In the normal course of events, the vehicles are used during the day for business purposes, returned to the employer during or at the end of the day, and parked at the employer’s premises while the employee travels home by his own means.
Occasionally, the day’s business trips are extended beyond normal working hours, and for practical reasons the employee takes the pool car home.
The difficulty in applying the ‘no value’ concession is because of the rather convoluted wording of the third condition. The interpretation of this point is that the vehicle can be kept at the employee’s residence only when it has been used for business purposes outside of normal hours.
If this is the case, then the ‘no value’ concession will still apply.
Taxable Scenario
An employee has a temporary problem because his own vehicle is in the garage for repairs, and the employer allows the employee to use a ‘pool car’ to travel from work to home and back again while his car is in the garage.
In this case, point 3 is not complied with because there is no business use outside of business hours to justify the use of the vehicle to go home, yet it is used for this private travel.
Result: A pro rata portion of the fringe benefit value for a full month of the private use must be calculated.
‘Standby’ or ‘Tool of Trade’ Vehicles
The value of private use of the motor vehicle by an employee is deemed to be nil, if –
1. The nature of the employee’s duties is such that the employee is regularly required to use the motor vehicle for the performance of those duties outside normal hours of work; and

2. The employee is not permitted to use that motor vehicle for private purposes other than –
• Travelling between his or her place of residence and his or her place of work; or
• Private use which is infrequent or is merely incidental to its business use.
This ‘nil value’ concession assists the users of vehicles that are regularly used for work outside of normal working hours, and where the private use (other than from home to work), is infrequent or incidental to the business use.
Note that:
1. ‘Normal working hours’ are the hours of the employee who has the right of use of the vehicle, and can therefore vary for different employees
2. The use outside of an employee’s normal working hours must occur regularly – occasional use will not be frequent enough to constitute regular use.
The last requirement is the difficult one:
The private use (excluding travel from the usual place of residence to the usual place of employment) must be
“… infrequent or merely incidental to its business use”.
My opinion is that the ‘nil value’ conditions are met, therefore the concession remains in place, if the private travel:
1. Is in respect of travel from home to work, and back again, OR
2. Is infrequent, OR
3. Is incidental to the business use.
For example, if the employee uses the maintenance vehicle once per year to travel to his annual holiday destination, in my opinion this would be ‘incidental’ and would not invalidate the ‘nil value’ concession.
It is the employer’s responsibility to prove that the requirements for the nil value provisions have been met.
3.10 Reductions to the Fringe Benefit value
There are three ways in which the income value fringe benefit value can be reduced on assessment –
1. An across-the-board reduction for business travel, calculated by reducing the code 3802 fringe benefit value by the ratio of business kilometers divided by total kilometers (from the logbook).

2. If the employee pays in full for any one or more of insurance, licence fee or maintenance expenses, the total expense incurred by the employee is reduced by the ratio of private kilometers to the total kilometers to represent the private portion of the cost, and this value reduces the fringe benefit value

3. If the employee pays the full cost of fuel of the private use of the vehicle, the fringe benefit value will be reduced by a value calculated by multiplying the SARS Cost Scale table fuel rate/km by the number of private kilometers in the logbook.
How the employee (or SARS?) is going to know the value of fuel that was used for the private use of the vehicle in order to be eligible for the fuel reduction, is a mystery.
But this is not new – the old legislation had very similar wording where it provided for the 0,22% monthly relief.
Logbook
It goes without saying that if the employee wants to reduce the income value of his company car fringe benefit on assessment, a logbook must be kept.
All of the reductions listed above are dependent on either the number of business or private kilometers.
Logbooks are therefore required for company cars, travel allowances, but not for travel reimbursements if the full amount of the travel reimbursement is excluded from income (code 3703).
If a logbook is not kept, the employee will not be allowed a reduction to the value of the fringe benefit on assessment and will have to pay to SARS the tax that was not withheld in the payroll. This will result in some very unhappy employees paying the payroll office a visit.
It is not a legal requirement, but more of a moral duty to inform your employees of the consequences of not keeping a logbook.
3.11 Company Cars – Miscellaneous Matters of Interest
Company Cars plus Travel allowances
If the employee is paid a travel allowance –
1. In respect of a company car, the company car is taxed as described in the rules above, but the travel allowance is not administered as a travel allowance and is taxed in full and reported on the tax certificate as either code 3601 (salary) or perhaps better, as code 3713 (taxable general allowance).

2. In respect of another vehicle that is not a company car, then the company car is taxed as described in the rules above, and the travel allowance is taxed and reported as a code 3701 travel allowance. Business travel expenses in respect of the other vehicle can be claimed on assessment against the travel allowance.
VAT on Company Cars
The current calculation is based on a VAT regulation issued in 1991 by the Minister of Finance at the time, Barend du Plessis. This regulation is outdated and has not been aligned with the changes made to the company car provisions in the Seventh Schedule effective from March 2011.
For example, the determined value for the VAT calculation excludes VAT, whereas VAT is included for the fringe benefit calculation. Then the reduction for maintenance costs paid by the employee is based on the outdated 0,18% pm, and further, there is no provision for a reduction if the employee pays for fuel, insurance, or licence expenses.
I have requested SARS to look into this problem, but this was many years ago, and at the time of writing this workbook, there is still no clarity on the matter. Until we get clarity (which is maybe never), I suggest that you continue to calculate the VAT as you always have done in the past. The old calculation is included below.
Assuming that the employer is a registered VAT vendor, the use of a company car is a deemed supply, and VAT is payable. The value of the deemed supply is generally determined with reference to the cash equivalent of the benefit. The value of the deemed supply in respect of a company car is 0,3% pm of the determined value of the motor vehicle where the employer was denied a deduction of input tax on the purchase of the vehicle (for example, a passenger motor vehicle). Otherwise, 0,6% must be used.
The VAT portion of the fringe benefit value is calculated as follows:
1. Determined value (currently excluding VAT) x 0,3% pm x 15 / 115
2. If the vehicle is a commercial vehicle, use 0,6% instead of 0,3%.
3. If the employee bears the full cost of maintaining the vehicle, the value of the VAT supply is reduced by the amount by which the value of the fringe benefit is reduced (currently 0,18%).
Typically, the monthly output VAT on a company car purchased by the employer for R228 000 (including VAT) will be calculated as R73.68 ((R228 000 x 100/114 x 0,3% ) x 15/115).
It is very important to note that the output VAT expense of R73.68 per month may be claimed by the employer as a deduction for income tax purposes.
Ensure that your accounting system allocates this to a tax-deductible expense account.
Summary of the Principles of Company Cars
1. The vehicle is owned or rented by the employer (or an associated institution).

2. When the use of the vehicle is granted to an employee, it is called a ‘company car’.

3. Company cars can be granted to employees even if the employee does not travel for business purposes.

4. The employer must –
a. Establish the determined value of the vehicle
b. Determine the correctly monthly fringe benefit percentage
c. Calculate the income value of the fringe benefit that arises for the private travel use
d. Include a percentage (100% or 80% or 20%) of the income fringe benefit value in remuneration
e. Report the income value of the fringe benefit on tax certificates.

5. The employee should –
a. Record his daily business kilometers in a logbook
b. Record his expenses if he pays the full amount towards licence, insurance, or maintenance costs
c. Record his expenses if he pays the full amount towards fuel costs
d. Claim business travel expenses on assessment by submitting his logbook details in his ITR12
e. Claim running cost expenses on assessment by submitting his logbook details in his ITR12.
Summary of the Tax calculation Principles for ‘purchased’ Company cars
1. The employer pays for all capital and running costs of the vehicle
2. The vehicle is deemed to be used for private travel only and remuneration is determined on that basis
3. Business travel expense reduction is provided for in the payroll by including only 80% or 20% of the income value in remuneration.
The fringe benefit and tax for the use of a company car is calculated and administered by –
1. Calculating the fringe benefit income value by multiplying the vehicle’s determined value by a monthly percentage
2. Including a portion of the fringe benefit’s income value into remuneration
3. Reporting the income value of the fringe benefit on the tax certificate for assessment purposes
4. Subject to a logbook and proof of running costs paid by the employee, the fringe benefit value can be reduced on assessment before the calculation of income tax.
Comparison of the ‘Old’ law to the ‘New’ law
As mentioned earlier in this Chapter, significant changes were made to the legislation that provides for company car administration from 2011, as well as in 2015.
The following table is an analysis done at the time that illustrates the changes and even though this happened ‘way back’, I have included for your interest.
Comparison between the legislation prior to March 2011, and the legislation from March 2011 onwards.
DESRIPTION OF THE REQUIREMENT OLD LEGISLATION
(Up to February 2011) NEW LEGISLATION
(From March 2011)
Determined Value Calculations
VAT VAT is excluded VAT is included
Maintenance Plan Subtract maintenance plan value Rate reduced to 3,25% pm
Depreciation 15% pa per 12 months Unchanged
Fringe Benefit Calculations
Fringe Benefit percentage 2,5% pm or 4,0% pm 3,5% or 3,25% pm
‘80% / 20%’ inclusion options 100% 80% or 20% (100% is allowed)
Reductions to the Fringe Benefit Value
Reduction principle Allowed in the payroll 80% or 20% reduction in payrolls
General private use If less than 10,000 private kms
General business use Reduce: business kms ratio calc.
Employee pays for fuel Monthly rate reduced by 0,22% Reduce: private kms x fuel rate
Employee pays for maintenance Monthly rate reduced by 0,18% Reduce: private kms ratio calc.
Employee pays for licence costs Reduce: private kms ratio calc.
Employee pays for insurance Reduce: private kms ratio calc.
‘No Value’ Concessions
Pool Cars Zero value if criteria are satisfied Unchanged
Tool of Trade vehicles Zero value if criteria are satisfied Unchanged

2. The substance (meaning) of the interpretation of an advance is that it is an early payment of a reimbursement.
The only material difference between an advance and a reimbursement is that an advance is paid to the employee before the business expense is incurred, while a reimbursement is paid to the employee after the expense is incurred.
This means that even though the wording of the interpretation of an allowance and an advance is virtually identical, in substance (at the heart of it), an advance is actually an ‘early’ reimbursement.
It is easier to comment on the commonalities and differences between concepts when they are shown in a comparison table form such as the following one that compares the main characteristics of general allowances, advances, and reimbursements.
Key Aspects Allowance Advance Reimbursement
1 ‘Employer’s Control’ Grants Grants/Instructs Instructs
2 ‘Employers Expense’ Yes Yes Yes
3 ‘Value’ Realistic estimate Realistic estimate Actual
4 ‘Proof’ required No Yes Yes
Relating the insights gained from this table to travel allowances and travel reimbursements, and using the row numbers of the table to reference the comments below, it can be seen that –
1. The employer has control over whether, and how, the compensation is paid. However, along with the power of control, goes the responsibility to exercise that power in a fair and legally compliant manner.
2. The aspect that results in an answer of ‘Yes’ across all three columns of the table is that of the ‘Employer’s Expense’. This makes it absolutely clear that the business portion of travel allowances and the actual value of travel advances and travel reimbursements are the employer’s expense and must not be paid for by the employee (see also the package structuring discussion in chapter 6).
3. The employer must ensure that a realistic amount is estimated for a travel allowance – this is not an easy matter and will be discussed in more detail in the travel allowance chapter 4.
This also applies to the granting of an advance – the difference being that the advance must be ‘proved’ after the event at which stage it no longer has an estimated value but an ‘actual’ value – allowing any difference to be refunded by the employee to the employer or paid by the employer to the employee.
Reimbursements are only paid against proof, which is of course the actual value of the expense.
See the section later in this workbook for a discussion on whether the value of a travel allowance must include only the estimated business expenditure, or whether it can be legally increased to provide for a private travel amount portion as anticipated by the ‘inclusion percentages’ of the Fourth Schedule.
4. The interpretation states that proof of the kilometers travelled per business trip is not required for travel allowances. This is true according to the principle of allowances, but not quite true as far as one aspect of travel allowance administration is concerned.
Information is necessary to estimate a realistic estimate of the value a travel allowance. After that, proof of the actual travel is not required on a monthly basis until the value must be re-estimated in terms of the employer’s policy (it is a good practice to re-visit the travel allowance value at least once a year – or when the vehicle or job circumstances change).
The employee must maintain a logbook (discussed in a section below) and submit it to SARS when requested by SARS to do so. The logbook total and business kilometres travelled are used for the calculation of the allowable business travel expenses claim. This is also a form of ‘proof’.
Just for interest’s sake, note that the travel reimbursement is not a ‘true’ reimbursement because the amount that is reimbursed is not the actual cost of the kilometers travelled.
It is a deemed cost because the rate per kilometer that is used to calculate the reimbursement amount is either a deemed cost rate that is determined from the Cost Scale table supplied by SARS for this purpose, or the ‘Prescribed’ rate/km.
This is why this type of travel compensation is called a “Reimbursive Travel Allowance” by SARS – it is actually a hybrid between an allowance and a reimbursement but leans more towards being a reimbursement.
2.7 The Concept of ‘Private Travel’
The concept of ‘private travel’ lies at the heart of the rules that govern the taxation of travel compensation.
Under a variety of scenarios that arise in practice, both the employer and the employee must be able to differentiate correctly between private and business travel –
• The employer must check the travel claim from the employee and tax the compensation correctly, and
• The employee must record business kilometers correctly for reimbursement claims and for logbooks.
This puts the responsibility to understand the concept of private travel on both the employer and the employee.
Private Travel ‘Definitions’
The concept of ‘private travel’ is not defined in the Income Tax Act but is referred to in section 8 (that deals with travel allowances and travel reimbursements), and again in paragraph 7 of the Seventh Schedule (that deals with company cars).
Section 8(1)(b)(i) states that an employee’s private travel is any travel –

“… 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 private or domestic purposes …”.
[My emphasis added to highlight the differences between the two ‘definitions’]

The Seventh Schedule in paragraph 7(4) states that an employee’s private travel is any travel –

“… including travelling between the employee’s place of residence and his or her place of employment or any other travelling done for his or her private or domestic purposes, …”.

Comments on the Private Travel ‘Definitions’
The wording of the two ‘definitions’ differ, resulting in a potentially different meaning for private travel for travel allowances and travel reimbursements (section 8), compared to the meaning for the use of a company car (Seventh Schedule section 7(4)).
The “his or her” differences are not important, but the phrase ‘or business’ that was added to the legislation from the 2014 tax year, is only included in section 8 for travel allowances and travel reimbursements, is important.
Interpreted literally (as it was by a certain tax authority at the time), it means that the travel from a ‘place of residence’ to a client’s business premise:
1. Is private travel for travel allowances and travel reimbursements
2. Is not private travel for a company car.
This would have resulted in serious problems if this was the correct interpretation.
Fortunately, SARS intervened and issued an interpretation that states that the “place of ‘business’ applies to office holders; and place of ‘employment’ applies to employees“.
The SARS interpretation makes practical sense. Nothing changes conceptually – it is only that private travel for public office holders is now defined for travel allowances and travel reimbursements.
Finally, what is important is that the substance of the two ’definitions’ (the wording that specifies that the travel “between the employee’s place of residence and his place of employment …” is private travel), is common to travel allowances, travel reimbursements, and company cars.
As you can see, deciding whether the travel is ‘private’ or ‘business’ is not as easy as it sounds. Getting it right requires a good understanding of the concept and a healthy dose of good luck.
Change to ‘private travel’ for Judges
Of interest is the amendment that provides that when judges travel from their place of residence to the various courts over which they preside in a state-owned vehicle, that this travel is deemed to be business travel.
This amendment is interesting in two respects.
Firstly, as stated above the practice has for many years been that travel from an employee’s place of residence to a client (or a place of work or business), is treated as business travel. The court where the judge presides for the day is not his ‘usual’ place of employment but is the place where he deals with his ‘clients’ and is his place of work (or business). The amendment is therefore merely confirming that practice, and one wonders why the legislators have gone to the trouble to change the law in this respect.
Secondly, one wonders why the concession has been made for judges only and not for employees in general. To allow the new concession for judges only is patently unfair. There are many employees in all sectors of business who travel in principle under the same circumstances as do judges, and the concession should also apply to them.
In my opinion, the proposed concession supports the interpretation that where for example an employee whose duty it is to travel directly from home to the various branches of the company for branch visits, the travel is for business purposes.
2.8 Understanding ‘Private Travel’
At the heart of the two ‘definitions’ discussed above, is that ‘private travel’ is the travel –

“… between the employee’s place of residence and his place of employment …”.

If you can identify the employee’s place of residence and place of employment, then it is easy – any travel between these two places is private travel. If not, it is business travel.
This makes it sound easy – it isn’t. There are many ‘grey area’ scenarios where all you can do is to try your best.

WARNING
Please be aware that the guidance follows is my personal opinion and not that of SARS.
It is not infallible, but I find that it helps me to analise the problem, and hopefully come close to the correct answer.

Place of Residence
To help you to identify the place of residence correctly, I have split the many types of residence into two groups –
1. a ‘usual’ place of residence
2. a ‘temporary’ place of residence.
The ‘usual’ place of residence is –
• the employee’s regular home, or
• the place where the employee returns to “after all his wanderings”.
A ‘temporary’ place of residence would be a –
• hotel room
• guest house
• rented accommodation
• a friend’s home
• etc.,
that is used for business reasons for a ‘short’ period of time, and while the employee has a separate ‘usual’ place of residence.
The business reasons for using a ‘temporary’ place of residence include –
• a sales representative seeing customers in an area away from home
• a builder working on a building contract in an area away from home
• a visit from head office to a branch office or vice versa.
My opinion is that the first condition for classifying the travel as ‘private travel’ is potentially satisfied when the travel is from or to a usual place of residence’.
Any travel to or from a short-term temporary place of residence is potentially business travel.
See the table two pages down that summarises the travel options and the taxable/not taxable results.
Note that a ‘temporary’ place of residence must become the ‘usual’ place of residence:
1. In the absence of a ‘usual’ place of residence eg. if an employee sells his home and lives in a hotel for a few months while building or purchasing a new home
2. If the ‘temporary’ place of residence is occupied for longer than a ‘short’ period of time.
There is no guidance to help define whether a period of time is ‘short’ or ‘long’.
Perhaps one day is ‘short’, one month is ‘long’? You will have to decide ….
Place of Employment
The ‘place of employment’ is the second criteria that must be established when determining ‘private travel’. Again, to assist you to apply the concept correctly to a variety of scenarios, I have split the many types of places of employment into two groups –
1. a ‘usual’’ place of employment
2. a ‘temporary’ place of employment.
The ‘usual’ place of employment is –
• where the employee normally attends work, has a desk, reports for meetings, etc.
• the place where he is normally directly controlled and supervised from.
A ‘temporary’ place of employment would be –
• If the ‘usual’ place of employment is the head office, a branch office (or vice versa)
• If the ‘usual’ place of employment is an office of the building company, a building site
• In general, any place of work that is not the usual place of employment.
My opinion is that the second criteria for classifying the travel as ‘private travel’ is satisfied when the travel is to or from a usual place of employment.
Any travel to or from a temporary place of employment is potentially business travel.
Note that a ‘temporary’ place of employment must become the ‘usual’ place of employment if the employee is transferred (eg. to a branch office) and reports for work at premises that were previously the ‘temporary’ place of employment.
To further justify my interpretation that travel to or from a temporary place of employment is business travel, the use of the word employment in both ‘definitions’ of private travel instead of the word ‘work’ is significant. One can assume that in the minds of the legislators, the place of employment and the place of work are two different concepts.
As a generalisation, the ‘place of employment’ is a narrower concept than the ‘place of work’.
However, the SARS website and the SARS Logbook now state that:
“It is important to note that travel between your home and place of work cannot be claimed and is regarded as private travel.”
For example, for employees of a building company, the place of employment would be the head office or branch office of the building company, but the place of work could be at various building sites for periods of time during the course of their employment.
In this scenario, the place of work is not the same as the place of employment – it is the temporary place of employment.
Note that for the purposes of this discussion, the concepts of ‘temporary’ and ‘usual’ is very much a function of the length of time.
Where an employee of a building contractor is required to work from the building site on which office space is provided for the duration of contract (say for 6 months or more), then one must treat the building site as the usual place of employment (place of work).
‘Private Travel’ Guidance
My ‘Usual/Temporary’ guidance discussed in the section above, while not perfect, helps one to identify the facts of the scenario, resulting in better understand of the concept of ‘private travel’.
If one turned my opinion of a ‘place of residence’ and a ‘place of employment’ into an amendment to the law, then the two ‘definitions’ in the Income Tax Act could be changed to state that private travel is the travel –

“… between the employee’s (usual) place of residence and his (usual) place of employment …”.

Based on the above discussion, the following table analyses combinations of travel, both from and to, the ‘usual’ and ‘temporary’ types of ‘places of residence’ and ‘place of employment’, linked to my personal opinion of whether the travel in each scenario should be classified as ‘private’ or ‘business’ travel (or in-between …).
If you use this table, please keep two very important points in mind:
1. The travel in these scenarios is not travel in a personal environment (eg. weekend or holiday travel). The travel envisaged here is travel that takes place within an employment (or work) environment, as a result of employment requirements.
2. As discussed above, one must take the length of time into account when considering what is ‘usual’ and what is ‘temporary’. There is no guidance possible on how to differentiate between a ‘short’ period of time and a ‘long’ period of time.
Common sense tells me that one day is a ‘short’ period’ and that one month is probably a ‘long’ period. In-between is a grey area, and this is coupled to the huge variety of scenarios that I have received queries on during the years.
The application of ‘short’ and ‘long’ time periods for private travel varies from one scenario to the next.
After all that, you are warned! Here is the analysis table based on a strict interpretation of ‘temporary’ as always being just that and which is in favour of the employee … 
FROM/TO TO/FROM TYPE OF TRAVEL IF PAID FOR, THEN?
1 ‘Usual’ place of residence ‘Usual’ place of employment Private Taxable
2 ‘Usual’ place of residence ‘Temporary’ place of employment Business Not Taxable
3 ‘Usual’ place of residence ‘Temporary’ place of residence Business Not Taxable
4 ‘Temporary’ place of residence ‘Usual’ place of employment Business Not Taxable
5 ‘Temporary’ place of residence ‘Temporary’ place of employment Business Not Taxable
6 ‘Usual’ place of employment ‘Temporary’ place of employment Business Not Taxable
In conclusion, the above is only guidance.
It will not necessarily give you a conclusive and correct answer every time.
You will have to think carefully about the specific circumstances, and if you are uncertain and need a conclusive answer, then consider approaching SARS with the facts and request a BPR (Binding Private Ruling).
Special Scenarios
Private travel, but outside of normal working hours
The employee must travel from his ‘usual’ place of residence to his ‘usual’ place of employment but after normal working hours to attend to an emergency.
Unofficial advice in the past was to link this emergency travel to the ‘Standby’ vehicle nil value concession in the Seventh Schedule for company cars that classifies the use of a maintenance vehicle as business travel if the conditions for the zero rating of the fringe benefit are met (discussed in Chapter 3).
Applying the ‘standby’ vehicle principle to this scenario:
• If the ‘after hours’ travel to the workplace is regular and not as result of an emergency, this would certainly be an indication of ‘private’ travel, therefore taxable.
• If it happens on an irregular basis, or infrequently, it might be business travel.
There is no firm opinion or guidance on this one, so it would be best to follow the ‘no risk’ route, and tax the ‘after hours’ travel as private travel if it is paid for by the employer.
‘Home office’
In this scenario, the place of employment and the place of residence are the same physical place (eg. a director who runs his company from his home, or somebody on WFH (Work From Home) in these post-Covid days).
There can be no private travel in respect of travel from his ‘usual’ place of residence to his ‘usual’ place of employment because they are the same place. Obviously, travel for shopping, visits to friends, doctor’s visits, etc. is private travel.
Finally, two last thoughts before leaving the tricky subject of private travel.
1. Please note that these opinions are my own. I believe that they are reasonably accurate, fair to all parties and compliant with the intention of the legislation. Hopefully they will be of some help.
2. Because of the many different scenarios of travel by motor vehicle in the employment world, it is probably impossible to find a ‘one-size-fits-all’ solution. SARS will no doubt agree with this and recommend that the difficult scenarios are subjected to a ‘factual examination’.
2.9 Other Important Aspects of Business Travel Compensation
What is a motor vehicle?
The travel compensation legislation uses the term “motor vehicle”, interpreted by SARS as follows:

“A ‘motor vehicle’ is a road vehicle powered by a motor or engine, especially an internal-combustion engine. This would include a motorcycle.”

This interpretation includes a motorcycle (but not a boat …) and means that –
• A travel allowance can be granted in respect of a motorcycle,
• Travel reimbursements can be paid in respect of a motorcycle, and
• A motorcycle can be a company ‘motor vehicle’!
Then take note that while the overwhelming majority of travel compensation is paid in respect of business travel that takes place in either a privately owned or a company-owned motor vehicle, this is not always the case.
Public transport vehicles (buses, taxis, trains etc.) make up a third category of motor vehicle that is neither owned by the employee or by the employer. Travel compensation paid to employees who use public transport for business travel is dealt with under the chapter for travel allowances.
Section 7B Variable Remuneration
Income, including remuneration defined by the Fourth Schedule of the Income Tax Act, must be taxed on the earlier of the date of accrual (generally understood to be when there is ‘an unconditional entitlement to the money’), and the date of payment.
Due to significant administration problems experienced by employers and payrolls for many years particularly between the months of February and March, and after many requests from the PAGSA over the years prior to 2013, section 7B of the Income Tax Act was added to the Income Tax Act and introduced the concept of ‘variable remuneration’ from 1 March 2013 as the solution.
All of the remuneration types that are classified as ‘variable remuneration’ must now be taxed in the month in which they are paid, not the month in which they normally would have accrued.
Variable Remuneration Types
1. Overtime
2. Bonuses (annual, quarterly, performance, etc.)
3. Commission (commission is calculated based on a percentage, not on number of units produced)
4. Travel allowances (an allowance or advance paid in respect of business travel expenses)
5. Leave paid out (BCEA annual leave that is owing and paid on termination)
6. Reimbursive travel allowances (payment of kilometer-based business travel expenses)
7. Night shift allowances
8. Standby allowances
9. Employer-paid reimbursements (these must be ‘true’ reimbursements as specified in the IT Act) , and
10. An amount that is determined based on the employee’s work performance (from 1 March 2023).

Variable Remuneration is not applicable to deceased employees.

Kilometers that are reimbursed and that are travelled towards the end of February, accrue in February.
If the employee uses the company credit card for fuel in February (a travel allowance amount), it also accrues in February.
Being variable remuneration, both travel allowances and travel reimbursements are now taxed when they are paid (March in this scenario) thereby reducing the employer’s tax year end administration burden considerably.
In terms of the employee’s logbook, the kilometers that underly the travel allowance or travel reimbursement amount that is deemed to accrue in a month after the month in which the kilometers were travelled, the kilometers ‘move with the money’ and must be allocated in the employee’s logbook to the deemed month of accrual.
Outdated practice: Standardisation of Private kilometers
This is a good point to discuss a practice that some employers have applied from many years, apparently ‘approved’ by some SARS officials in earlier years, but I have only heard of it from the employers who were applying this practice, not from SARS.
Some employers record the distance from the employee’s home to the place of employment and use this as a ‘standard’ number of private travel kilometers for every working day.
Then if the employee travelled from home directly to a client’s business premises and from there to the workplace, the number of kilometers travelled in total was reduced by the number of ‘standard’ private travel kilometers and only the remaining kilometers were regarded as business travel kilometers.
This practice is nonsense – it is outdated, defies logic, and is unfair to the employee.
 
2.11 SARS ‘Cost Scale’ Table and Prescribed Rate
This section explains the principles of the SARS ‘Cost Scale’ table and the ‘Prescribed’ rate/km.
It is important to understand these principles before moving to Chapters 4 and 5 where the principles are taking a step forward by describing how to calculate and use the rates per km in practice for travel allowance estimates and travel reimbursement calculations.
Principles
As discussed above, the legislation requires any travel compensation paid or granted in respect of private travel to be taxed. However, before it can be taxed, the private travel portion of the compensation must have an income and a remuneration value for the respective tax calculations.
The Cost Scale table is not used for company car calculations. Company cars have their own special rules that must be used to calculate the fringe benefit value for the private use of the company car – discussed in Chapter 3.
For travel allowance and travel reimbursement calculations, SARS provide the ‘Cost Scale’ table from which a ‘Cost Scale’ rate/km for the car used for the business travel can be determined, as well as an alternative ‘Prescribed’ rate/km.
The employer can choose one of these two rates to use to estimate the value of a travel allowance, or to calculate the actual value of a travel reimbursement. Advice on ‘best practice’ is provided in Chapter 6.
In recent years, SARS adjust the “Cost Scale” table and the Prescribed rate regularly every year for inflation and issue them in a regulation to assist employers.
The latest regulation with the ‘Cost Scale’ table and the Prescribed rate for the 2023/24 tax year was issued on 3 March 2023 in Government Gazette No. 48162 with the following lengthy title:
‘Fixing of Rate per Kilometre in Respect of Motor Vehicles for the Purposes of Sections 8(1)(b)(ii) and (iii) of the Income Tax Act, 1962’.
In a process that will be explained in the travel allowances Chapter 4, the ‘Cost Scale’ table returns a determined (I prefer to use the term ‘Cost Scale’ – it is more precise) rate per kilometre for a motor vehicle based on its ‘Determined value’ that takes both capital and running costs into account.
The importance of the ‘Cost Scale’ table lies in the word ‘cost’. Cost reduces tax. Using the SARS Cost Scale table correctly results in a rate per kilometer that has a cost value that is acceptable to SARS.
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
The ‘Cost Scale’ table is structured as follows –
1. The first column of the table specifies the brackets for the determined value of the vehicle and is used to position the vehicle on the correct line in the table (the concept and the application of the determined value for company cars and travel allowances will be discussed in Chapters 3 and 4).
2. The second column of the table contains a “fixed cost” value for the vehicle that provides for finance charges, insurance, depreciation, and licensing [NOTE: Change this on the slide]. The rand value of the fixed cost must be divided by the total kilometres (private plus business) that are expected to be travelled in the tax year ahead to give a ‘Fixed cost’ rate/km.
3. The third column of the table specifies the fuel cost as a rate per kilometer
4. The fourth column of the table specifies the maintenance costs as a rate per kilometer
5. The total ‘Cost Scale’ rate per kilometer is calculated by adding the above three rates together.
6. The ‘Cost Scale’ table is limited to a motor vehicle with determined value of R800 000. This means that motor vehicles with a determined value higher than R800 000, will have the same determined rate/km as a motor vehicle of R800 000.
The result is that those who can afford more expensive motor vehicles will not receive a bigger tax benefit than those who can’t.
Note the following regarding the ‘Prescribed’ rate per kilometer:
1. The 2023/24 Prescribed rate/km has been increased by 11,0% from R4,18 to R4,64 per kilometer.
2. The Prescribed rate/km includes the Fixed, Fuel, and Maintenance cost elements and represents a fair value for a car of ‘average’ determined value that travels an ‘average’ total number of kilometers per year
3. It is a safe (i.e., no risk to the employer) option that employers should seriously consider using when estimating travel allowance amounts and for the calculation of travel reimbursement claims.
4. Employers that prefer not to use the Prescribed rate per kilometer, must use the ‘Cost Scale’ table to determine a rate/km that is based on the determined value of the privately-owned vehicle that is used to the estimate a travel allowance amount, and for the calculation of a travel reimbursement.
5. On assessment, SARS use the same ‘Cost Scale’ table and the kilometers declared in the logbook to determine the ‘cost’ rate/km that will be used to calculate the value of the business travel deduction expense.
2.12 Logbook Requirements
The SARS Interpretation Note # 14, as well as the example of a Logbook for 2023/24 on the SARS website, indicate that a travel logbook must include the following information for each day’s business trip –
1. Date
2. Opening kilometers
3. Closing kilometers
4. Total business kilometers
5. Business travel kilometers From
6. Business travel kilometers To
7. Business travel details (where, reasons for visit, etc.).
This is an overload of information that on the face of some of the descriptions, doesn’t make much sense.
Fortunately, common sense intervened. The opening page of the logbook example contradicts the layout of the logbook form by stating that the following minimum information for business travel is sufficient for a daily logbook:
1. Date of travel
2. (Business) Kilometres travelled
3. Travel details (where, reason for the trip, etc.).
This is far more practical, and it makes sense to use this for a logbook. However, this is where the good news ends.
Reason for the Business Trip
According to SARS Interpretation Note # 14, the ‘reason for the trip’ (point 3 above) is a crucial element of the logbook. SARS states that it “… 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 provided under “reason for trip” must be enough to allow SARS to verify that the travel was for business purposes and qualifies for a deduction. At the very least, this should include the following information:
1. Specific details of why the travel was undertaken, for example “presentation to board”, “meeting with supplier” or “delivery to client”.
2. 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”.
3. If contact details are available these should also be provided.
SARS request that as much detail should be provided as possible to allow SARS to verify travel claims without requesting additional information to prevent travel claims being rejected because of insufficient information.
Spreadsheet Solution
As a suggestion for the employer, consider creating the logbook in an Excel spreadsheet. The daily logbook details can be captured per employee (or perhaps downloaded from one of the Logbook ‘apps’ that are available). This provides management with useful travel statistics during the year, and at the end of the year, the spreadsheet is the employee’s final logbook for SARS.
More on this suggestion when we get to travel reimbursements in Chapter 5.
The employee must somewhere else record the opening and closing kilometers for the tax year, giving the total (business plus private) kilometers travelled in the year. The total private kilometers travelled is the difference between the total kilometers and the total business kilometers recorded in the logbook.
The total kilometers (business plus private) travelled for the year can be used for the Cost Scale table ‘fixed cost’ rate per kilometer calculation as described earlier.
Note that the logbook must be kept for 5 years in case SARS asks for it.

Chapter 2. Important Concepts
2.1 Purpose of Business Travel Compensation
The purpose of business travel compensation to:
• Compensate an employee who travels for business purposes and who has incurred the employer’s business travel expenses.
The purpose of business travel compensation IS NOT to:
• Assist the employee to purchase a motor vehicle!
If the employer does assist, this would simply be additional salary, and fully taxable.
• Assist an employee with his private travel expenses.
For good reasons, employers sometimes assist their employees with private travel expenses such as bus fares, taxi fares, etc. to enable the employee to get from home to work and back again.
This assistance is not ‘travel compensation’ as envisaged in this workbook, but it is interesting to note that while one would expect that assistance by the employer would be taxable, there are three methods available to assist employees with their private travel expenses – two are taxable, one is not taxable.
1. Taxable – the use of a company-owned or rented motor vehicle:
This would be a ‘company car’, which is one of the business travel compensation options discussed in detail in chapter 3 of this workbook. Because the use is solely for private travel, it would be taxed as normal as a company car but with no allowable deductions for business travel expenses.
2. Taxable – a transport allowance:
The employer pays a cash amount for bus fares, taxi fares, etc. This ‘transport’ allowance is paid in respect of private travel and is simply additional salary under another name.
3. Not taxable – a transport service:
The employer provides a service that takes employees in general from home to work and back again. In other words, the employer owns or rents a vehicle and employs a driver who takes the employees home after work and picks them up again in the morning from home for work as part of his duties.
2.2 Background to Business Travel Compensation
Most organisations need one or more of its employees to travel for work purposes for the organisation. When the employee bears the costs in any way for this business travel, the employer is obligated to compensate the employee for incurring the company’s expense.
The first problem is to differentiate between what portion of the travel is private travel and what portion is business travel.
The second problem is how to, legally and fairly, compensate an employee for incurring business travel expenses.
For the same reason that the employer must bear all the other costs of being in business, the cost of an employee having to travel from point A to point B for business purposes is the financial responsibility of the employer.
The obligation of the employer to pay for these business travel expenses gives rise to the three methods of business travel compensation that are currently provided for in the legislation, being –
1. Company motor vehicles (referred to in this workbook as ‘company cars’)
2. Travel allowances
3. Travel reimbursements (referred to in the legislation as ‘reimbursive travel allowances’).
The travel compensation rules are complex and prescribe the rules for the determination of the remuneration and income value of the private travel portion of the compensation, the calculation of PAYE and the reporting of travel compensation amounts on tax certificates for income tax assessment purposes.
These rules are as widely misunderstood as what travel compensation is prevalent, and if incorrectly applied, can place the employer at risk of having to pay penalties and interest, and potentially prejudice the employee’s tax position.
Broadly speaking, any compensation paid or granted to assist an employee for his private travel expenses is taxable, while compensation for business travel is not taxable. It is therefore essential to know whether the compensation is being paid in respect of private or business travel.
Private travel is thus a fundamental concept that is dealt with in a later section of this chapter.
There are three methods of travel compensation that can be used to compensate employees that travel for the employer’s business purposes by motor vehicle –
1. Company motor vehicles (referred to colloquially and in this workbook as ‘company cars’)
2. Travel allowances
3. Travel reimbursements.
It is not possible to discuss the three methods of travel compensation without an understanding of the ‘endgame’:
1. How are they taxed in the payroll for PAYE purposes during the tax year, and
2. How is income tax calculated by SARS at the end of the tax year.
This in turn requires an understanding of how to determine the remuneration value of travel compensation that is subject to PAYE, and how to report it on tax certificates, and how this remuneration relates to income and income tax.
As we will see, the closer that the value of remuneration that is calculated during the tax year is to the income value calculated at the end of the year, the better for all three parties: the employee, the employer, and SARS.
This is true of PAYE and income tax values in general, but it is of particular importance for business travel compensation because of the significant differences that can exist because of either a lack of understanding or the incorrect application of the rules.
2.3 Principles of Remuneration and Income
An understanding of the basic concepts of employees’ tax (during the tax year) and income tax (at the end of the tax year) will be of help when formulating a travel policy for your company that is cost efficient, fair to all parties, and compliant with the legislation.
During the tax year, usually on a monthly or weekly frequency, remuneration is paid by the employer to the employee in return for the employee working for the employer.
After allowing legitimate deductions from remuneration, the employer must calculate employees’ tax (PAYE), pay it monthly to SARS, and report the remuneration, deductions, and employees’ tax on tax certificates at the end of the tax year to inform the income tax calculation.
At the end of the tax year, the employee tax certificates submitted to SARS by the employer are recorded on the SARS data base and inform what is known as the income tax assessment processing of the annual ITR12.
Those employees who are required to do so (or those who decide to do so by choice), submit an annual ITR12 return to SARS and income tax is calculated by SARS.
Employees can claim allowable deductions from income on the ITR12 that were not deducted from remuneration by the employer in the payroll to reduce taxable income and calculate the final amount of income tax after taking rebates and total employees’ tax deducted during the tax year into account.
These deductions include legitimate business travel expenses (incidentally, statistics show that business travel expenses are one of the largest and most frequent deductions that are claimed on assessment).
2.4 PAYE vs Income Tax Comparison
From the above discussion, it follows that:
• Remuneration is a form of income paid during the tax year giving total income at the end of the tax year.
• Employees’ tax (PAYE) is an advance payment towards the income tax calculated at tax year end.
The comparison table that follows below shows that the paths of remuneration and income meet one another in the Fourth Schedule definition of remuneration, in which the preamble to that definition (underlined) states:

“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—
(a) … Etc.
‘Remuneration’ is therefore, by definition, directly linked to ‘income’.
From that meeting point onwards, both the PAYE and the income tax calculations follow the same basic steps. Their calculation methods are aligned in principle and the tax results should be the same or very similar, depending on whether there are additional streams of income or deductions that are claimed on assessment.
The PAYE and Income Tax calculation steps are summarised and compared in the following ‘Tax 101’ Comparison table that lacks a lot of detail, but hopefully gets the principles across.
‘Tax 101’ Comparison Table: Remuneration vs Income, and PAYE vs Income tax
REMUNERATION AND PAYE INCOME AND INCOME TAX
GROSS INCOME (ITA Section 1 definition)
1 • Plus: Section 1 special inclusions
2 • Less: Section 10(1) Exemptions
REMUNERATION (Fourth Schedule definition) Equals: INCOME
3 • Plus: Defined inclusions of travel compensation • Plus: Unexpended section 8 allowances
4 • Less: Paragraph 2(4) deductions • Less: Sections 11 and 23 deductions
Equals: BALANCE OF REMUNERATION Equals: TAXABLE INCOME
5 • Calculate ‘Gross’ PAYE • Calculate ‘Gross’ Income Tax
Calculate: ‘NET’ PAYE Calculate: ‘NET’ INCOME TAX
6 • Less: Section 6 ‘age’ rebates • Less: Section 6 ‘age’ rebates
7 • Less: Section 6A Medical Tax Credit (MTC) • Less: Section 6A Medical Tax Credit (MTC)
8 • Less: Section 6B Additional MTC (AMTC) • Less: Section 6B Additional MTC (AMTC)
9 FINAL PAYE FINAL INCOME TAX
The sequence of the nine calculation steps of PAYE and Income tax in the Comparison table is very important:
1. The exemption of certain amounts (such as the uniform allowance and some of the relocation allowance amounts) from gross income in section 10(1), means that these amounts are automatically excluded from remuneration (that is linked to ‘income’ from which these amounts have already been exempted).

2. The business travel expense portions of the three travel compensation amounts are allowed to reduce remuneration and income as follows:

 
a. Remuneration:
An estimate of the private travel portion of the travel compensation that must be included in remuneration for PAYE purposes must be made using the ‘80%/20%’ inclusion rates specified in the Fourth Schedule definition of remuneration (more on this in a section beneath).
Note that the calculation of the UIF contribution, the SDL levy, ETI, and at some stage in the future, the Compensation Fund remuneration, include this estimate of the private travel value.

This means that the remaining ‘20%/80%’ balance of the travel compensation is estimated to be business travel expenses and is not included in remuneration, therefore not subject to PAYE.
b. Income:
Only the ‘unexpended’ portion of the travel compensation (the portion of the compensation that is paid or granted in respect of private travel) is included when calculating taxable income.

This means that the ‘expended’ portion (the business travel portion of the travel compensation) reduces the value of taxable income and is achieved during the assessment process by applying the employee’s logbook that details the business travel.
2.5 Legal Framework for Travel Compensation
The steps shown in the Tax 101 Comparison table and their sequence reflect the Income Tax Act requirements.
The legislation that provides for travel compensation is included in full in the appendix at the end of this manual, but the legal framework is summarised here by focusing on the provisions that provide for travel compensation.
If the ‘legalese’ is not for you, then skip this section 
Gross income and Section 8
Section 1 of the Income Tax Act defines all amounts that make up gross income, and paragraph (i) includes all fringe benefits including that of a company car into gross income, as follows –

“(i) the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit or advantage granted in respect of employment or to the holder of any office, being a taxable benefit as defined in the said Schedule, and ….

Then the definition of gross income in paragraph (c) of section 1 of the Income Tax Act includes any amounts paid in respect of services –

“(c) any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered or any amount (other than an amount referred to in section 8(1)) received or accrued in respect of or by virtue of any employment or the holding of any office …”

Note that because the three ‘special’ allowances are defined to be ‘taxable income’ in section 8(1), they are excluded from the definition of ‘gross income’ (otherwise they would be included twice in taxable income).
Section 8(1) specifies that the portion of the travel allowance and the travel reimbursement that is not business travel (i.e. the private travel portion) is taxable income.

 
Section 8(1)(a)(i) specifies as follows –

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;

In respect of travel allowances, the above exclusion of business travel expenses in section 8(1)(a) allows the employee to claim the value of his business travel in terms of paragraph 8(1)(b) in order to reduce the value of the travel allowance or travel reimbursement that is included into taxable income.
This reduction is done on assessment if the employee declares his business kilometers travelled during the year in the logbook area of his ITR12 annual return form.
Section 23(m)
Section 23(m) was added to the Income Tax Act with effect from 1 March 2002 and is included in this workbook because there is a misunderstanding that the deductions that are no longer allowed by section 23(m) include deductions for business travel expense claims (by the way, there is no negative impact).
Firstly, section 23(m) specifies that the only category of taxpayers that are allowed to claim business expenses on assessment other than the allowable deductions listed in section 23(m) are –

“…agents or representatives who earn mainly [more than 50%] of their remuneration in the form of commission based on sales or turnover attributable to him…”

Section 23(m) also allows labour law independent contractors that are deemed to be employees by the Fourth Schedule to claim business expenditure related to their services income.
Secondly, section 8(1)(a)(i) of the Income Tax Act includes all allowances into taxable income after first allowing business expenses to be deducted from the special allowances (travel, subsistence, and public office).
Section 8(1)(a)(i) does not allow business expenses to be deducted from general allowances before they are included in taxable income, therefore their full (gross) value is included.
Taxable income is the balance of income after deductions have been made – no further deductions can be claimed from amounts that are classified as taxable income. Therefore, no business-related expenses can be claimed against general allowances that are reported on the tax certificate. For example, if a tool allowance is paid and reported on the tax certificate as a code 3713 general allowance, then no tool expenses can be claimed on assessment.
Agents or representatives who earn more than 50% of their remuneration in the form of commission based on sales or turnover attributable to them, as well as labour law independent contractors who are deemed to be Fourth Schedule employees, are still allowed to claim expenses from general allowances.
Employers are advised to stop paying general allowances, and to rather reimburse the employee for these business expenses.
Remember that all general allowances are remuneration, whereas reimbursements are not.
Changing from allowances to reimbursements will reduce total remuneration thereby lowering the cost of the 1% skills levy and the 1% employer-paid UIF contribution.
To confirm – all employees who are paid or granted business travel compensation are allowed to claim business travel expenses from their travel income on assessment by virtue of the section 8 provisions discussed above.
Section 8(1)(b)(ii) provides for travel allowances and specifies as follows –

(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;

Section 8(1)(b)(iii) provides for travel reimbursements and specifies as follows –

(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;

Fourth Schedule Remuneration
Travel compensation is paid or granted to the employee on a weekly, fortnightly, or monthly frequency during the tax year, and the rules that must be followed to estimate the remuneration value of the private travel are provided in the definition of remuneration in the Fourth Schedule.
The Fourth Schedule definition of remuneration, limited here to only the sub paragraphs that are relevant for travel compensation, are specified below.

 

“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—

(b) any amount required to be included in such person’s gross income under paragraph (i) of that definition, excluding an amount described in paragraph 7 of the Seventh Schedule;

(bA) any allowance or advance, which must be included in the taxable income of that person in terms of section 8(1)(a)(i), other than —
(i) an allowance in respect of which paragraph … (cA) applies;
(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) 80 per cent of the amount of the taxable benefit as determined in terms of paragraph 7 of the Seventh Schedule: 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 such amount must be included;
(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;
[my emphasis added]
Subparagraph (cC) was added to the definition of remuneration with effect from 1 March 2018.
2.6 Principles of Allowances, Advances and Reimbursements
Before being able to apply the requirements of each type of payment correctly, one has to understand the legal characteristics of allowances, advances, and reimbursements.
Note that the allowances, advances, and reimbursements that are interpreted below are general of nature and not specific to business travel compensation.
However, travel allowances, travel advances, and travel reimbursements being a subset, must fit into these interpretations.
The SARS interpretations of the three types of payment follow.
Allowances
SARS Interpretation
“An allowance is an amount of money granted by an employer to an employee to incur business-related expenditure on behalf of the employer, without an obligation on the employee to prove or account for the business-related expenditure to the employer. The amount of the allowance is based on the anticipated business-related expenditure.”
The SARS interpretation is so important that I have separated the main aspects of each interpretation to put these aspects into focus and to allow comparisons to be made across the three payment types.

An allowance is an amount of money
1. granted by an employer to an employee in circumstances where
2. the employer is certain that
3. the employee will incur business-related expenditure on behalf of the employer, but where
4. 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 anticipated business-related expenditure.

There are some key concepts to take note of in the above interpretation of allowances –
1. The employer grants the allowance (i.e. the employer controls whether it is paid or not), but the employer –
a. must be certain that the expense (travel for business purposes) will be incurred.
b. must estimate a realistic (“expected”) value for the allowance.
2. The allowance compensates the employee for incurring the employer’s business-related expense.
3. The employee need not submit proof of the expense to the employer (but for a travel allowance should/must keep a logbook in order to claim his business travel expenses from SARS on assessment).
Advances
SARS Interpretation
“An advance is an amount of money granted by an employer to an employee to incur business-related expenses on behalf of the employer, with an obligation on the employee to prove or account for the business-related expenditure to the employer. The amount of the advance is based on the anticipated business-related expenditure. The employer recovers the difference from the employee if the actual expenses incurred are less than the advance granted and vice versa.”

An advance is an amount of money
1. granted by an employer to an employee in circumstances where
2. the employer is certain that
3. the employee will incur business-related expenditure on behalf of the employer, and where
4. the employee is obliged to prove or account for the business expenditure to the employer.

The amount of the advance is based on the anticipated business-related expenditure.
Where the actual expenses incurred are less than the advance granted, the employer recovers the difference from the employee, and vice versa.

If one compares the two tables that analise the components of the interpretations of allowances and advances, it can be easily seen that the wording is identical except for point 4 where an advance requires proof of the expense when it is incurred.
This difference affects the administration procedures where for advances, the difference between the advance and the actual value of the expense is sorted out between the employer and the employee when the proof is supplied.
However, the ‘substance’ (or the actual meaning) of an advance is that it is in reality an ‘early reimbursement’. The only difference between the two is that an advance is paid to the employee for a business expense before it is incurred, while the reimbursement is paid to the employee after incurring the expense.
Both the advance and the reimbursement must be proved or accounted for to the employer.
Reimbursements
SARS Interpretation
“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.”

A reimbursement of business-related expenditure occurs when
1. an employee incurred business-related expenses on behalf of an employer out of his own pocket
2. and is subsequently reimbursed for the expenditure by the employer
3. after having proved and accounted for the expenditure to the employer.

The employer must instruct the employee to incur the expense, and where an asset is purchased, the employer must be the owner of the asset.

In the employment world, a reimbursement of business expenditure occurs when an employee pays for business expenses on behalf of the employer and is then reimbursed for the expenditure by the employer after having proved and accounted for the expenditure to the employer.
The following are the general requirements for a valid (legal) reimbursement.
The reimbursement must further the trade of the employer, and there must be:
1. Instruction from the employer to incur the expense, and
2. Proof of the actual value of the expense (vouchers, invoices, etc.) must be provided to the employer
3. If an asset was purchased and reimbursed, then the asset must be owned by the employer.
Points 1 and 2 above apply to travel reimbursements.
Any amount paid to an employee wholly in reimbursement of expenditure incurred by the employee in the course of his employment, is excluded from both income and remuneration.
Reimbursements do not have to be reported on tax certificates except for:
1. Travel reimbursements (the reporting rules will be discussed in chapter 4)
2. Subsistence allowances (which SARS deem to be a reimbursement if paid below the daily expense limits).
Comments on the Interpretation of Allowances, Advances, and Reimbursements
The dual nature of an advance is made obvious by a comparison of the SARS interpretations –
1. The form (wording) of the interpretation of an advance is exactly the same as that of the interpretation of an allowance with only one difference – proof of the business expenditure is required.

Chapter 3. Company Cars
3.1 Principles of Company Cars
As an alternative (or as an addition) to a travel allowance or a travel reimbursement, employers grant their employees the right to use company-owned (or rented) motor vehicles for private travel that could also include business travel.
The commonly used term “company car” is used in this workbook to describe a motor vehicle that is owned or rented by an employer, and the right to use that vehicle for private and/or business travel is granted by the employer to an employee.
Note that while travel allowances and travel reimbursements may not be paid to compensate an employee for his private travel expenses, company cars can be legally granted to an employee who only travels for private purposes.
The question of ownership or rental by the employer of the company car is an important distinction that must be made before the discussion of the tax calculation principles.
3.2 Company Cars that are Rented
Traditionally the motor vehicles used as company cars were purchased by the employer. However, in recent years, the number of vehicles rented (held by employers under an ‘operating lease’) has increased.
An ‘operating lease’ relates to moveable property and is defined in section 23A. For a lease to be an ‘operating lease’ the lease arrangement must contain the following elements:
1. The employer must lease the vehicle from a lessor in the ordinary course of the lessor’s business (not being a banking, financial services, or insurance business)
2. The vehicle must be available to lease to the general public for a period of less than a month
3. The costs of maintaining the vehicle (including any repairs to the vehicle necessary due to normal wear and tear) must be borne by the lessor; and
4. Subject to the claim a lessor may have against a lessee for failing to take proper care of the vehicle, the risk of loss or destruction of the vehicle must not be assumed by the lessee.
Any lease which does not satisfy these requirements (for example, a “finance lease”) is not an ‘operating lease’ as defined and would result in the tax calculation reverting to that of a company-owned vehicle.
3.3 Tax Calculation Principles
The tax calculation rules are based on the following two important principles:
1. The employer pays for all purchase costs as well as all running expenses, and
2. The company car is used for private travel only.
These two principles are the starting point of the tax calculation rules. There are exceptions and special cases to these principles that modify the tax calculation rules and that are discussed in sections that follow.
The use of a company car for private travel results in a taxable fringe benefit that is included in the employees’ gross income under paragraph (i) of the definition of “gross income”.
The rules to determine the cash equivalent income value of the taxable fringe benefit are provided in paragraph 2(b) read with paragraph 7 of the Seventh Schedule.
The Fourth Schedule then includes the income cash value of the fringe benefit into remuneration after allowing in the payroll for a reduction of either 80% or 20% as a provision to make provision for business travel expenses on assessment if the company car is used for business travel.
The final reduction of the income cash value for business travel expenses is done at the end of the year in the assessment process (described in a section below) before income tax is calculated.
Taxable Fringe Benefit
When an employer (or an associated institution in relation to the employer) grants an employee (or a relative of the employee), the right to use a motor vehicle for private travel, a taxable fringe benefit must be calculated in the payroll, reduced in value if the employee pays the employer a consideration for the private use.
Private Travel
Private travel has been discussed in detail in Chapter 2 and besides stating that the Seventh Schedule ‘defines’ private travel to be the travel between the employee’s ‘place of residence’ and the ‘place of employment’, the principles are not repeated here.
There is one exception to the ‘private travel’ definition that only applies to company cars (it does not apply to travel allowances and travel reimbursements).
If the employee is a “Constitutional Court judge” or a “judge”, their travel between their home and the court over which they preside is deemed to be business travel if a state-owned vehicle is used for the travel.
Value of the taxable benefit
The cash equivalent value of the taxable benefit is calculated in one of two ways:
1. Where the vehicle is owned by the employer, the income value of the fringe benefit is equal to:

Fixed percentage per month x the determined value of the motor vehicle

2. If the vehicle is rented via an “operating lease”, the income value of the fringe benefit is equal to:

Actual cost incurred under the operating lease plus the cost of fuel incurred on the same vehicle

The cash value of the fringe benefit can be reduced by any consideration paid by the employee to the employer (excluding any consideration paid for the cost of licences, insurance, maintenance, or fuel).
For interests’ sake, one of the fundamental differences between a travel allowance and a company car, is that the value of the travel allowance that is taxed in the payroll is to a very limited extent, subject to the employer’s discretion, while the employer cannot fiddle with the value of the company car without being non-compliant.
3.4 Fringe Benefit Formula: Fixed Percentage pm x Determined value
The components of the fixed percentage formula for the calculation of the fringe benefit value for company-owned vehicles are now discussed in more detail:

“Fixed percentage per month x the determined value of the motor vehicle “

The ‘Fixed percentage’
The default value of the ‘fixed percentage’ is 3,5% per month. It can be reduced to 3,25% if the motor vehicle:
“… was the subject of a maintenance plan when it was acquired by the employer”.
Firstly, a ‘service plan’ is not a ‘maintenance plan’ and if there is a service plan, the fixed percentage is 3,5% pm.
A maintenance plan:
1. Is a contractual obligation undertaken by the provider in the ordinary course of trade with the public
2. Underwrites the costs of all maintenance (other than top-up fluids, tyres, or abuse of the motor vehicle)
3. Must be for or a period of at least three years or a distance of 60 000 kilometres, whichever comes first.
Secondly, it is important to note the following:
1. The maintenance plan must commence at the same time that the motor vehicle is bought by the employer. If the maintenance is either a ‘top up’ or an ‘add-on’ plan, then the vehicle is not the subject of a maintenance plan when the vehicle was acquired, and the monthly rate of 3,5% must be used.

2. However, once a valid maintenance plan expires, the monthly rate of 3,25% that was legally used during the period of the maintenance plan, can continue to be used.
Use of a Company car for Part of a Month
In this context, a ‘month’ is a ‘calendar month’, defined in the Income Tax Act to be any one of the 12 portions into which a calendar year is divided.
The fringe benefit value for the private use of a motor vehicle must be calculated for each month or part of a month during which an employee was entitled to use the motor vehicle for private purposes.
If the employee was only entitled to use the vehicle for part of a month, the fringe benefit value must be apportioned according to the number of days that the employee was entitled to use the motor vehicle in that month
This means that if an employee is only granted the right to use a motor vehicle for the first time in the middle of a month (for example, 15 June), the fringe benefit value must be apportioned by dividing it by 30 days (for June) and multiplying by 15 days of entitlement to use the vehicle.
However, the fringe benefit value may not be reduced if, for whatever reason, an employee who is entitled to use the vehicle but does not use the motor vehicle for private purposes for a temporary period, unless the vehicle is returned to the employer so that its use can be allocated to another employee.
Employee is granted the Use of more than one Company car
If the use of more than one vehicle is granted at the same time to an employee, and each vehicle is used primarily (mainly) for business purposes, then the highest fringe benefit value is used for all of the vehicles.
Note that a logbook must be maintained for each vehicle to substantiate that each vehicle is used primarily for business use (i.e., more than 50% of the total distance travelled with each vehicle is business use).
If each vehicle is not used primarily (mainly) for business purposes, then the use of that vehicle is taxed as normal as though it is used for private travel purposes.
Use of the same Company car by more than one Employee
When an employer grants the right of use of a motor vehicle to an employee, the result is that a taxable fringe benefit must be raised for the private travel use.
If the employer grants the right of use of the same vehicle to more than one employee, then in principle both employees are subject to fringe benefit tax on the full value of the vehicle.
One then questions the maintenance of a logbook and the claim for business travel expenses on assessment.
My opinion is that because both employees were taxed in full, that both employees can claim business travel expenses on assessment, but those expenses must only be in respect of each individual employee’s business travel.
Sounds complicated.
3.5 Determined value
Background
Going back to pre-2014, investigations revealed that certain types of companies were benefiting from a lower determined value than the mainstream of companies, resulting in a lower private use fringe benefit value. This was unfair – two employees with identical cars should not have different fringe benefit values.
Before 2015, the types of companies that benefited from a lower determined value than other companies, were:
1. Motor vehicle manufacturers: Determined value = manufactured cost
2. Importers of Vehicle: Determined value = landed cost
3. Motor Dealers: Determined value = Dealer Billing Price
4. Rental companies: Determined value = Dealer Billing Price
The ‘Dealer Billing Price’ is the manufacturers or importer’s recommended selling price of motor vehicles when they sell their vehicles to motor vehicle dealers and rental companies. This is a much lower price than what a customer will pay when purchasing the vehicle from a Motor Dealer (the retail market value).
Amendments 1 March 2015 and the Regulation for Retail Market Value
Paragraphs 7(1)(a), 7(1)(b)(i), 7(1)(b)(ii), and 7(1)(c) of the Seventh Schedule define four methods of acquiring ownership of a motor vehicle, summarised as follows —
1. Acquired (paragraph 7(1)(a)):
Acquired by the employer as a result of a cash purchase
2. Current Lease (paragraph 7(1)(b)(i)):
Is held by the employer under an on-going financial lease
3. Paid-up Lease (paragraph 7(1)(b)(ii)):
Was held by the employer under a financial lease (ownership acquired on termination of the lease)
4. In any other case (paragraph 7(1)(c)):
The vehicle was not purchased but sponsored or donated to the employer at ‘no value’ by another person.
Paragraphs 7(1)(a) and (c) were amended with effect 1 March 2025 to add the concept of the “retail market value” of the vehicle that from 1 March 2025 must be used as the determined value of the acquisition of a motor vehicle.
The regulation that specifies how to determine the retail market value of a motor vehicle was published in Government Gazette No. 38744 on 28th April 2015 and was made retrospectively effective from 1st March 2015.
Its provisions were phased in over 3 years, ending with the final position on 1 March 2018 that is still in force today.
The following table summarises the four methods of acquisition of a motor vehicle and shows the two methods where the retail market value must be calculated according to the rules of the regulation.

Paragraph Reference (Seventh Schedule) Method of Acquisition of a Motor Vehicle Retail Market Value Determined By
1 Paragraph 7(1)(a) Cash purchase The regulation
2 Paragraph 7(1)(b)(i) Financial lease (current) The lease’s ‘cash value’
3 Paragraph 7(1)(b)(ii) Financial lease (paid-up) The lease’s ‘cash value’
4 Paragraph 7(1)(c) ‘No value’ acquisition The regulation
Note that vehicles rented from a bona fide rental company in terms of an ‘operating lease’ specified in section 23A(1) are not affected by the changes to the determined value definition, because as we will see, the ‘determined value’ of the vehicle is not used to calculate the fringe benefit for company cars that are rented by the employer.
Explanation of the Regulation’s Requirements
The rules specified in the regulation that specify a value to the retail market value are complex and provide for a number of scenarios differentiated by —
1. Employer Type:
a. Motor vehicle Manufacturer or Importer
b. Motor vehicle Dealer or Rental company
c. All other employers (who are not one of the above).

2. Vehicle Type:
a. New vehicles
b. Used vehicles.

3. Acquisition Value:
a. Purchased for a Value
b. Acquire at no cost (sponsored, donated, etc.).
Within each of the above scenarios, different sets of rules specify whether VAT must be included or excluded from the retail market value and in a few cases in the years between 2015 and 2017, whether or not to apply a discount percentage.
The table that follows specifies the various scenarios covered by the regulation, as well the rules to be followed for each scenario in order to determine the value of the retail market value correctly.
The rules from 1 March 2015 have been deleted because they are history, and no longer have any value. The rules from 1 March 2018 have been retained in the table because they are still in force today.
Retail Market Value Calculation Table
Employer Category New / Used Regulation Reference Effective From Base Value Plus the Repair Cost VAT
1 Manufacturers and Importers of motor vehicles New 2(a)(i)(dd) 1 Mar 2018 DBP Included
2 Used 2(a)(iii) 1 Mar 2018 COST Included
3 1 Mar 2018 MARKET Yes Included
4 Motor Dealers and motor vehicle Rental companies New 2(b)(ii) 1 Mar 2018 DBP Included
5 Used 2(b)(iv) 1 Mar 2018 COST Included
6 1 Mar 2018 MARKET Yes Included
7 Companies other than the above New 2(c) 1 Mar 2015 COST Included
8 Used 2(c) 1 Mar 2015 COST Included
Explanation of the Abbreviations used in the Table:
1. DBP: Dealer Billing Price (the manufacturer’s recommended selling price to Motor Dealers)
2. COST: Purchase cost of the vehicle Cost including VAT, excluding finance charges and interest
3. MARKET: The Market value including VAT (plus the cost of any repairs).
Finance charges and interest are always excluded from the retail market value and are therefore not indicated in the table.
For companies other than motor vehicle manufacturers, importers, dealers, and rental companies, by applying the regulation rules to the definition of the determined value in the Seventh Schedule paragraph 7(1), the ‘adjusted’ definition of the determined value is as follows (very much simplified):
1. The original cost of the purchase, including VAT, excluding finance charges and interest, or
2. The cash value of an ongoing lease (other than an operating lease), or
3. The cash value of a paid-up lease (other than an operating lease), or
4. In any other case (i.e., not purchased), the market value of the motor vehicle.
The cash value and the market value are relatively straight forward concepts and are not discussed further in this workbook, but the original cost needs some explanation.
Comments on the ‘Original cost’ to the employer
There are some variations to the value of the employer’s ‘original cost’ to be aware of.
Add-on Items
The original cost of the motor vehicle:
• Includes the cost of add-on items such as tow bars, media players, air conditioners, smash-and-grab window tinting and security alarms
• Does not include the cost of insurance products such as the monthly service fee for vehicle tracking or roadside assistance.
Consideration Paid by the Employee
Employees sometimes contribute towards the original cost of a motor vehicle.
For example, employers sometimes place a limit on the cost price of the motor vehicle but allow the employee to select a motor vehicle that exceeds that limit on the basis that the employee contributes the difference between the full cost price of the motor vehicle and the limit set by the employer.
In these circumstances when determining the ‘original cost’, the employer may deduct the employee’s contribution from the full cost price of the motor vehicle.
This means that by contributing financially, the determined value is reduced and the monthly fringe value that the employee is taxed on will be reduced accordingly (less money in the bank, less tax, and the employee drives a more fancy car  ).
Motor Dealers and Motor vehicle Rental companies
It is common practice that employees of dealers in new and used motor vehicles and employees of employers in the motor vehicle rental industry use several ‘company cars’ from the dealer floor for relatively short periods.
In these circumstances, SARS accept that the cost of the motor vehicle used is equal to the average cost of all stock in trade or rental vehicles on the dealer floor at the end of the immediately preceding year of assessment of the employer as an alternative to determining the actual cost of the particular motor vehicle used during each period.
The method of calculating the average cost must be appropriate to the dealer’s circumstances.
For example, if the dealer sells new and used motor vehicles but employees are only allowed to use used motor vehicles, then the average cost of the used motor vehicles on the floor must be used as the ‘determined value’.
The average cost of a motor vehicle may not be used if a specific employee is granted the right of use of a specific motor vehicle or if the right of use of a motor vehicle has been granted to a specific employee as a reward for performance or a motivational tool.
SARS is also of the view that an employee, who has been granted the right of use of a motor vehicle for a period of time which is not considered to be ‘short’, will have been granted the use of a specific motor vehicle.
It appears that one week is seen to be a ‘short’ period, whereas one month is seen to not be a ‘short’ period.
SARS will consider the facts of each case when deciding whether the period that the employee has the use of a particular motor vehicle is ‘short’.
Depreciation of the Determined Value
The determined value of the motor vehicle can be reduced if the employee is granted the right of use of the motor vehicle 12 months or more after the employer first acquired the motor vehicle or the right of use thereof.
The reduction is by means of a depreciation allowance of 15% according to the reducing-balance method for each completed 12-month period from the date the employer acquired the motor vehicle.
The determined value of a company car can be depreciated according to specific rules.
The depreciation is calculated according to the reducing balance method at 15% for each completed 12 period between:
1. The date when the employer first acquired the vehicle or obtained the use of the vehicle, and
2. The date that the employee was first granted the right of use of the vehicle.
Note the importance of the word “first” when applying the depreciation calculation.
For example:
• A vehicle with a determined value of R228 000 was purchased by the employer on 1st January 2007
• The use of the vehicle was first granted to employee A on that date (1st January 2007)
• Thirty months later, the use was granted to employee B on 1st July 2009
• Twelve months later, the use was granted back to employee A on 1st July 2010.
The depreciation calculation is illustrated in the following table.
Table: Company Car Depreciation of the Determined value
DEPRECIATION CALCULATION DETERMINED VALUE REDUCED BALANCE
Employee A given the use of the vehicle on 1st January 2007 R228 000
• Value reduced by 15% of R228 000 = R34 200 on 1st January 2008 R193 800
• Value reduced by 15% of R193 800 = R29 070 on 1st January 2009 R164 730
Employee B given the use of the vehicle on 1st July 2009 R164 730
• Value reduced by 15% of R164 730 = R24 709,50 on 1st July 2009 R140 020,50
Employee A given the use of the vehicle on 1st July 2010 R228,000
The determined value for employee A will be depreciated twice at the start of each year on the anniversary date of when the use of the vehicle was first granted.
The depreciated determined value of R164 730 after 24 months of ownership by the employer will be applied as the determined value when employee B is granted the use of the vehicle (only full 12-month periods are allowed to be depreciated).
After a further full 12 months, the use of the car is granted back to employee A. The determined value then reverts back to R228 000 (the determined value when the use was first granted to employee A).
The important part of the depreciation calculation to be aware of is that the determined value can only be depreciated when the use of the car is moved from one employee to another.
Note that the value of the initial determined value including VAT is depreciated.
3.6 Fringe Benefit Formula: Monthly Cost plus the Cost of fuel
The number of vehicles held by employers under “operating leases” (rented) has increased.
An “operating lease” is used for moveable property (such as a motor vehicle) and its identifying elements are explained in an earlier section of this workbook, so need not be repeated.
If the vehicle is rented via an “operating lease” and the right to use the vehicle for private travel is granted to an employee, the income value of the fringe benefit is calculated as the:

“Actual cost incurred under the operating lease plus the cost of fuel incurred on the same vehicle”.

Note the following:
1. The fringe benefit calculation formula is based on the premise that the vehicle will be used for only private travel purposes, and that by arrangement, the rental company and the employer pay for all running costs
2. The cash value of the fringe benefit can be reduced by any consideration paid by the employee to the employer (excluding any consideration paid for the cost of licences, insurance, maintenance, or fuel).
3. In circumstances where the vehicle is not rented via an “operating lease, the ‘Fixed percentage’ formula must be used to calculate the value of the private use.

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.