Relevant Extracts for Travel

Seventh Schedule
BENEFITS OR ADVANTAGES DERIVED BY REASON OF EMPLOYMENT OR THE HOLDING OF ANY OFFICE
DETERMINATION OF CASH EQUIVALENT OF VALUE OF TAXABLE BENEFIT
RIGHT OF USE OF MOTOR VEHICLE
Paragraph 7.
(1) For the purposes of this paragraph, “determined value”, in relation to a motor vehicle, means—
(a) where such motor vehicle (not being a vehicle in respect of which paragraph b(ii) of this definition applies) was acquired by the employer under a bona fide agreement of sale or exchange concluded by parties acting at arm’s length, the original cost thereof to the employer (excluding any finance charge or interest payable by the employer in respect of the employer’s acquisition thereof); or
(b) where such motor vehicle—
(i) is held by the employer under a lease; or
(ii) was held by the employer under a lease and the ownership thereof was acquired by him on the termination of the lease,
the retail market value thereof at the time the employer first obtained the right of use of the vehicle or, where at such time such lease was a lease contemplated in paragraph (b) of the definition of “instalment credit agreement” in section 1 of the of the Value-added Tax Act, 1991 the cash value thereof as contemplated in the definition of “cash value” in the said section; or
(c) in any other case, the market value of such motor vehicle at the time when the employer first obtained the vehicle or the right of use thereof:
Provided that—
(a) where an employee has been granted the right of use of such motor vehicle as contemplated in subparagraph (2) and such vehicle, or the right of use thereof, was acquired by the employer not less than 12 months before the date on which the employee was granted such right of use, there shall be deducted from the amount determined under the foregoing provisions of this subparagraph a depreciation allowance calculated according to the reducing balance method at the rate of 15 per cent for each completed period of 12 months from the date on which the employer first obtained such vehicle or the right of use thereof to the date on which the said employee was first granted the right of use thereof; and
(b) where such motor vehicle was acquired by the employer from an associated institution in relation to the employer and the employee concerned had, prior to such acquisition, enjoyed the right of use of such motor vehicle, the determined value shall be the determined value as at the date on which the employee was granted the right of use of such motor vehicle for the first time.
(2) Where an employee has been granted the right to use any motor vehicle as contemplated in paragraph 2 (b), the cash equivalent of the value of the taxable benefit shall be so much of the value of the private use of such vehicle (as determined under this paragraph in respect of the period of use) as exceeds any consideration given by the employee to the employer for the use of such vehicle during such period, other than consideration in respect of the cost of the licence, insurance, maintenance or fuel in respect of such vehicle.
(3)
(a) Where an employer’s rights and obligations under a lease in respect of a motor vehicle are transferred to his employee the employer shall for the purposes of this Schedule be deemed to have granted the employee the right to use such vehicle for the remainder of the period of the lease.
(b) In such case—
(i) any rentals becoming payable by the employee under the lease shall be deemed to be a consideration payable by him for the said right; and
(ii) the determined value of the vehicle shall be deemed to be an amount determined in accordance with the provisions of subparagraph (1)(b);
(4) Subject to subparagraph (10), the value to be placed on the private use of such vehicle shall be determined for each month or part of a month during which the employee was entitled to use the vehicle for private purposes (including travelling between the employee’s place of residence and his or her place of employment) and the said value shall—
(a) as respects each such month, be an amount equal to 3,5 per cent of the determined value of such motor vehicle: Provided that where the motor vehicle is the subject of a maintenance plan at the time the employer acquired the motor vehicle or the right of use thereof, that amount shall be reduced to an amount equal to 3,25 per cent of the determined value of the motor vehicle; and
(b) as respects any such part of a month, be an amount which bears to the appropriate amount determined in accordance with item (a) for a month the same ratio as the number of days in such part of a month bears to the number of days in the month in which such part falls.

(5) No reduction in the value determined under subparagraph (4) shall be made for the purposes of item (b) of that subparagraph by reason of the fact that the vehicle in question was during any period for any reason temporarily not used by the employee for private purposes.

(6) Where more than one motor vehicle is made available by an employer to a particular employee at the same time and the Commissioner is satisfied that each such vehicle was used by the employee during the year of assessment primarily for business purposes, the value to be placed on the private use of all the said vehicles shall be deemed to be the value of the private use of the vehicle having the highest value of private use or such other vehicle as the Commissioner may direct: Provided that the preceding provisions of this subparagraph shall not apply where the provisions of subparagraph (7) or (8) are applied.

(7) Where it is proved to the satisfaction of the Commissioner that accurate records of distances travelled for business purposes in such vehicle are kept, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of the vehicle, calculated under subparagraph (4), by an amount that bears to that calculated value the same ratio as the number of kilometers travelled for business purposes bears to the total amount of kilometers travelled in such vehicle during that year of assessment.

(8) Where it is proved to the satisfaction of the Commissioner that accurate records of distances travelled for private purposes in such vehicle are kept and the employee bears—
(a)
(i) the full cost of the licence for such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the licence for such vehicle the same ratio as the number of kilometers travelled for private purposes bears to the total number of kilometers travelled in such vehicle during that year of assessment;

(ii) the full cost of the insurance of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the insurance for such vehicle the same ratio as the number of kilometers travelled for private purposes bears to the total number of kilometers travelled in such vehicle during that year of assessment; or

(iii) the full cost of the maintenance of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the maintenance for such vehicle the same ratio as the number of kilometers travelled for private purposes bears to the total number of kilometers travelled in such vehicle during that year of assessment;
(b) the full cost of fuel for private use of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of the vehicle during that year of assessment calculated under subparagraph (4) by an amount determined for the total kilometers travelled for private purposes by applying the rate per kilometre for fuel fixed by the Minister in the Gazette for the purposes of section 8(1)(b (ii) and (iii);

(10) For the purposes of this paragraph the private use by an employee of a motor vehicle shall be deemed to have no value, if—
(a)
(i) the vehicle is available to and is in fact used by employees of the employer in general;

(ii) the private use of the vehicle by the employee concerned is infrequent or is merely incidental to its business use; and

(iii) the vehicle is not normally kept at or near the residence of the employee concerned when not in use outside of business hours; or
(b) the nature of the employee’s duties are such that he or she is regularly required to use the vehicle for the performance of those duties outside his or her normal hours of work, and he or she is not permitted to use that vehicle for private purposes other than—
(i) travelling between his or her place of residence and his or her place of work; or
(ii) private use which is infrequent or is merely incidental to its business use.

(11) For the purposes of this paragraph, “maintenance plan”, in relation to a motor vehicle, means a contractual obligation undertaken by a provider in the ordinary course of trade with the general public to underwrite the costs of all maintenance of that motor vehicle, other than the costs related to top-up fluids, tyres or abuse of the motor vehicle, for at least a period of not less than three years and a distance travelled by the motor vehicle of not less than 60 000 kilometers from the date that the provider undertakes the contractual obligation: Provided that the contractual obligation may terminate at the earlier of—
(a) the end of the period of three years; or
(b) the date on which the distance of 60 000 kilometers is travelled by that motor vehicle.

1.3 Regulation: Fixing of Rate/km for Travel reimbursements

GN 3112 of 3 March 2023: Fixing of rate per kilometre in respect of motor vehicles for the purposes of section 8(1)(b)(ii) and (iii) of the Act
(Government Gazette No. 48162)
SOUTH AFRICAN REVENUE SERVICE

Under section 8 (1) (b) (ii) and (iii) of the Income Tax Act, 1962 (Act No. 58 of 1962), I, Enoch Godongwana, Minister of Finance, hereby determine that the rate per kilometre referred to in that section must be an amount determined in accordance with the Schedule hereto.
(Signed)
E GODONGWANA
Minister of Finance

1. Definition.— In this Schedule, “value” in relation to a motor vehicle used by the recipient of an allowance as contemplated in section 8 (1) (b) (ii) and (iii) of the Income Tax Act, 1962, means—
(a) where that motor vehicle (not being a motor vehicle in respect of which paragraph (b) (ii) of this definition applies) was acquired by that recipient under a bona fide agreement of sale or exchange concluded by parties dealing at arm’s length, the original cost thereof to him/her, including any value-added tax but excluding any finance charge or interest payable by him/her in respect of the acquisition thereof;
(b) where that motor vehicle—
(i) is held by that recipient under a lease contemplated in paragraph (b) of the definition of “instalment credit agreement” in section 1 of the Value-Added Tax Act, 1991; or
(ii) was held by him/her under such a lease and the ownership thereof was acquired by him/her on the termination of the lease, the cash value thereof as contemplated in the definition of “cash value” in section 1 of the Value-Added Tax Act; or
(c) in any other case, the market value of that motor vehicle at the time when that recipient first obtained the vehicle or the right of use thereof, plus an amount equal to value added tax which would have been payable in respect of the purchase of the vehicle had it been purchased by the recipient at that time at a price equal to that market value.

2. Determination of rate per kilometre.—
The rate per kilometre referred to in section 8(1)(b)(ii) and (iii) must, subject to the provisions of paragraph 4, be determined in accordance with the cost scale set out in paragraph 3, and must be the sum of—
(a) the fixed cost divided by the total distance in kilometres (for both private and business purposes) shown to have been travelled in the vehicle during the year of assessment: Provided that where 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 366 days;
(b) where the recipient of the allowance has borne the full cost of the fuel used in the vehicle, the fuel cost; and
(c) where that recipient has borne the full cost of maintaining the vehicle (including the cost of repairs, servicing, lubrication and tyres), the maintenance cost.

Relevant Extracts for Travel
1.2 Calculation of VAT on the company car fringe benefit deemed supply
GG 13651 GN 2835 of 22 November 1991:
Directions for purposes of section 10(8) and (13)
DEPARTMENT OF FINANCE
I, Barend Jacobus du Plessis, Minister of Finance, hereby prescribe in terms of subsections (8) and (13) of section 10 of the Value-Added Tax Act, 1991 (Act No. 89 of 1991), that the consideration in money for the supplies contemplated in the said paragraphs be determined in the manner as set out in the Schedule.
Schedule
(1) In this Schedule, any word or expression to which a meaning has been assigned in the Act, bears the meaning so assigned thereto, and, unless the context otherwise indicates—
“determined value”, in relation to a motor vehicle, means—
(a) where a motor vehicle, except a motor vehicle contemplated in paragraph (b)(ii) of this definition was acquired by a vendor under an agreement of sale or exchange concluded by parties acting at arms’ length, the original cost thereof to him, excluding any finance charges, interest, sales tax or value-added tax; or
(b) where such motor vehicle—
(i) is held by the vendor under a lease; or
(ii) was held by the vendor under a lease and the ownership thereof was acquired by him on the termination of the lease,
the retail market value thereof at the time the vendor first obtained the right of use of the motor vehicle or, where at such time such lease was a financial lease for the purposes of the Sales Tax Act, 1978 (Act No. 103 of 1978), the cash value thereof as contemplated in paragraph 2 of Schedule 4 to that Act, or, where at such time such lease was an instalment credit agreement as contemplated in section 1 of the Act, the cash value thereof as defined in section 1 of the Act reduced by the amount of value-added tax; or
(a) where such vehicle was acquired otherwise than contemplated in paragraphs (a) or (b), the market value of such motor vehicle at the time when the vendor first obtained the vehicle or right of use thereof:
Provided that where an employee has been granted the right of use of such motor vehicle and such vehicle, or the right of use thereof, was acquired by the vendor not less than 12 months before the date on which the employee was granted such right of use, there shall be deducted from the amount so determined under the aforegoing provisions of this definition a depreciation allowance calculated according to the reducing balance method at the rate of 15 per cent for each completed period of 12 months from the date on which the vendor first obtained such vehicle or the right of use thereof to the date on which the said employee was first granted the right of use thereof; and
“the Act” means the Value-Added Tax Act, 1991 (Act No. 89 of 1991).
(2)
(a) For the purposes of the proviso to subsection (8) of section 10 of the Act, the consideration in money for the deemed supply shall be 0,3 per cent of the determined value of the motor vehicle for each month or part thereof calculated as from 1 October 1991.
(b) If the method of determination of consideration in money contemplated in subparagraph (a) is used with reference to a motor vehicle, that method of determination of consideration in money shall also be used for the succeeding 11 months in respect of the motor vehicle in question.
(3) For the purposes of the proviso to subsection (13) of section 10 of the Act, the consideration in money for the deemed supply shall be—
(a) 0,3 per cent of the determined value of the motor vehicle (for each month or part thereof calculated as from 1 October 1991) where the motor vehicle is a motor car as contemplated in the Act and the vendor was in terms of section 17(2) of the Act not entitled, or would not have been entitled had that section been applicable prior to the commencement date, to deduct the full amount of input tax in terms of section 16(3) of the Act in respect of such motor car when it was supplied to or imported by him; or
(b) in a case other than contemplated in paragraph (a) 0,6 per cent of the determined value of the motor vehicle (for each month or part thereof calculated as from 1 October 1991): Provided that where the employee pays a consideration for the right of use of such motor vehicle, the consideration in money determined monthly in terms of this paragraph shall be reduced by the lesser of the consideration paid by the said employee or the amount of the consideration in money determined monthly:
Provided that where the employee bears the full cost of repairs and maintenance of the motor vehicle and no compensation in the form of an allowance or reimbursement is payable by the vendor to the employee in respect of the said cost, the consideration in money so determined monthly shall be reduced by the lesser of—
(i) R85; or
(ii) the amount of the consideration in money determined monthly:
Provided further that the consideration in money calculated in this paragraph, after the application of the provisos, shall be reduced to the extent that the right to use the motor vehicle is granted by the vendor in the course of making exempt supplies.
BJ DU PLESSIS,
Minister of Finance.

Relevant Extracts for Travel

Fourth Schedule
AMOUNTS TO BE DEDUCTED OR WITHHELD BY EMPLOYERS AND PROVISIONAL PAYMENTS IN RESPECT OF NORMAL TAX AND PROVINCIAL TAXES
“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) any amount referred to in paragraph (a), (c), (cA), (d), (e), (eA) or (f) of the definition of “gross income” in section 1 of this Act;
(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 (c) or (cA) applies; or
(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) which is based on the actual distance travelled by the recipient, and which is calculated at a rate per kilometre which does not exceed the appropriate rate per kilometre fixed by the Minister of Finance under section 8(1)(b)(iii): 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 fringe 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;

1.1 Relevant Extracts from the Income Tax Act
Income tax Act – Section 1. Interpretation. —In this Act, unless the context otherwise indicates—
“gross income”, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such resident; or
(ii) in the case of any person other than a resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such person from a source within or deemed to be within the Republic,
during such year or period of assessment, excluding receipts or accruals of a capital nature, but including, without in any way limiting the scope of this definition, such amounts (whether of a capital nature or not) so received or accrued as are described hereunder, namely—
(a) 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: Provided that—
(i) the provisions of this paragraph shall not apply in respect of any benefit or advantage in respect of which the provisions of paragraph (i) apply;
(b) any amount, including any voluntary award, received or accrued in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment or of any appointment (or right or claim to be appointed) to any office or employment: Provided that—
(a) the provisions of this paragraph shall not apply to any lump sum award from any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund;
(b) any such amount which becomes payable in consequence of or following upon the death of any person shall be deemed to be an amount which accrued to such person immediately prior to his death;
(c) a retirement fund lump sum benefit or retirement fund lump sum withdrawal benefit;

(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 …. ;

8. Certain amounts to be included in income or taxable income.—
(1)
(a)
(i) 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 actually 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;
(b) For the purposes of paragraph (a)(i)(aa) —
(i) any allowance or advance in respect of transport expenses shall, to the extent to which such allowance or advance has been expended by the recipient on private travelling (including travelling between his place of residence and his place of employment or business or any other travelling done for his private or domestic purposes), be deemed not to have been actually expended on travelling on business;
(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));
(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;
(iiiA) where the portion of the allowance or advance which is claimed by the recipient to be actually expended is calculated based on accurate data furnished by the recipient in respect of any vehicle—
(aa) in the case of a vehicle that is being leased, the total amount of payments in respect of that lease may not in any year of assessment exceed an amount of the fixed cost determined by the Minister in the notice contemplated in subparagraph b(ii), for the category of vehicle used;
(bb) in any other case—
(A) the wear and tear of that vehicle must be determined over a period of seven years from the date of original acquisition by that recipient and the cost of the vehicle must for this purpose be limited to R400 000, or such other amount determined by the Minister by notice in the Gazette; and
(B) the finance charges in respect of any debt incurred in respect of the purchase of that vehicle must be limited to an amount which would have been incurred had the original debt been R400 000, or such other amount determined by the Minister in terms of subitem (A);
(iv) where any motor vehicle which is owned or leased by an employee, his spouse or his child, whether directly or indirectly by virtue of an interest in a company or trust or otherwise, has been let to the employer or any associated institution in relation to the employer, the sum of the rental paid by the employer or associated institution and any expenditure defrayed by the employer or associated institution in respect of the vehicle, shall be deemed to be an allowance paid to the employee in respect of transport expenses, and in such case the said rental shall for the purposes of this Act (excluding this paragraph) be deemed not to have been received by or to have accrued to the lessor of such motor vehicle, and for the purposes of paragraph 2(b() of the Seventh Schedule such employee shall be deemed not to have been granted the right to use such motor vehicle.

4. Last thoughts on Travel Compensation
There are good reasons to use travel reimbursements in your company –
1. The employer controls the rate/km (and therefore the eventual cost to the employer)
2. Depending on the rate/km used, the travel reimbursement is excluded from remuneration, whereas the travel allowance and company car add to the company’s total remuneration amount.
3. Using a travel reimbursement lowers the employer’s costs of the SDL and UIF contribution costs – depending on the numbers, this could result in a substantial saving for the employer.
4. There is no confusion in the minds of employees or employers that this is the employer’s business expense, and that it simply does not belong in a package.
The only downside of the travel reimbursement is that the employer must administer the claim forms for the reimbursements, but as suggested earlier, using spreadsheets for the business travel claims can simplify and reduce administration for both the employer and the employee.
5. Proposals to Change the Travel Compensation Legislation
Travel compensation legislation has been changed over the years to close loopholes and to keep up with the changing nature of employment.
It remains a difficult area for employers, employees, SARS, and legislators.
For several years the PAGSA has proposed that the policymakers consider phasing out travel allowances over a few years, to be replaced by travel reimbursements.

3. Travel Compensation and Package Structuring
A discussion of the principles of package structuring must start with the labour law concept of remuneration.
The BCEA defines remuneration to be the amount paid in cash or in kind in return for one person (the employee) working for another (the employer). Payments in cash are obvious, and payments in kind are employer-paid contributions to medical schemes, retirement funds, funeral schemes, etc., as well as benefits in kind.
By definition, allowances are not BCEA remuneration. Allowances are payments made to allow work to be done, not in return for work done. Therefore, in labour terms, allowances cannot be a component of a package.
The employer and the employee agree (usually contractually) on the services that the employee will provide to the employer, and they further agree on the remuneration that the employer will pay in return for his services rendered. This remuneration is then the employee’s package.
The purpose of a ‘package’ is therefore to reward the employee for his services.
The purpose of business travel compensation is to compensate an employee who has incurred the employer’s business travel expenses. Therefore, the supply of a company car (which could be only for private travel), the granting of a travel allowance or the payment of a travel reimbursement, compensates the employee for incurring the employer’s business expense.
In principle this is a reimbursement of business expenses incurred by the employee. Reimbursements are not remuneration, and therefore don’t belong in a package structure. Travel compensation should be paid ‘on top’ of the package, along with variable remuneration such as commission and overtime, and statutory costs such as UIF, SDL and OID).
In principle then, company cars, travel allowances and travel reimbursements cannot be included as a component of the employee’s package otherwise the employee would be paying the employer’s expense out of his own pocket, which would be unfair to the employee.
However, ‘principle’ and ‘practice’ are quite often two different things, so where does leave this us as far as travel compensation is concerned?
Company cars
Company cars are a regular feature in the packages of managers and senior executives, and companies that provide company cars have mostly sorted out the question of fairness of value in terms of ‘who gets what car’ in their company car policy.
There is an important difference between company cars and travel allowances in that the use of a company car can be legally granted to an employee solely for private travel.
If there is only private travel, structuring a company car into a package does not break the principle that the employer’s expense should not be paid for by the employee out of his package, and justifies including the company car as a package component.
However, this is not always the case – the company car often has both a private and a business value embodied in its ‘cost’ value.
From this it appears that if the employee is prepared to do the job for the package total that rewards his services, and if the employee understands that if there is a business portion of the use of the company car is coming out of his own pocket, then you have an agreement.
Travel allowance
The problem with a legitimate travel allowance is that its value will always include a business travel portion.
The business cost of the travel allowance should be marginally increased to provide an element of private use value that is essentially ‘salary’.
The business portion of the travel allowance cannot be included in the package, while the private portion can be included. If included, the private portion must have an accurate cost value otherwise it would make no sense to include it in a costing structure whose purpose it is to control the employer’s costs.
The private travel value of a travel allowance can only be calculated with accuracy at the end of the tax year, but the value is needed from the start of the tax year for the package calculation. Therefore, the estimated value of the private portion must be used, in the full knowledge that the final private travel value at the end of the tax year will differ from the estimated value.
In practical terms, this boils down to the same thinking as for the company car.
If the employee is prepared to do the job for the package that is offered as the reward, and if the employee understands that the business expense portion of the travel allowance is coming out of his own pocket, then you have an agreement.
Generally, in line with remuneration package structuring principles, as the travel allowance value increases, the cash component value gets less.
Employees will start to request a lower travel allowance value in order to get more cash, until one day somebody realises that they are not getting the full value of their claim for business travel expenses on assessment because the claim value is limited to the travel allowance value.
They will then demand a higher travel allowance value, and the employer might get into a risk position by overestimating the value of the travel allowance, and the cycle will repeat itself.
Travel reimbursement
It is crystal clear that a travel reimbursement is the employer’s expense, and therefore it cannot be used as a package component.

1. Income Tax Calculation of Travel Compensation
Focusing on travel income only, Rob Cooper’s understanding of the principle of the SARS calculation of income tax at the end of the tax year for travel allowances and travel reimbursements, is as follows:
1. Using the ITR12 annual return facilities, the employee declares the vehicle’s determined value, the vehicle’s opening and closing kilometers for the year (the difference is total km travelled), plus his daily business travel km as recorded in his logbook.
2. SARS calculates the Cost Scale rate/km from the information declared in the ITR12.
3. SARS calculates the business travel expense deduction by multiplying the business kilometers from the logbook by the Cost Scale rate/km.
4. SARS calculates the total income for travel from the tax certificate as follows:
• For travel allowances: Equals the Code 3701 amount
• For travel reimbursements: Adding together the code 3701, 3702 and 3722 amounts.
5. SARS calculates taxable travel income by deducting the business travel expense from the total travel income but limits the value of the business travel deduction to the total travel income amount.
6. SARS calculates income tax from the taxable income amount.
The above is no doubt a simplistic view of the principles that underlie the SARS travel income tax calculation, but hopefully, it is reasonably accurate, at least in principle.
It does indicate that for travel allowances and travel reimbursements, the most important factor in aligning the PAYE and Income tax calculations is the rate/km that is used by both calculations.
This suggests that a rate/km greater than the Cost Scale rate/km should not be used in the payroll – it will backfire on the employee when SARS raise an assessment at the end of the year.
Because of the advantages of simpler administration and fairness to all employees, serious consideration should be given to standardising using the Prescribed ratedkm in the payroll to prevent remuneration from being calculated.
Other factors that can result in there being differences between the PAYE and the Income-tax calculated on travel amounts are:
1. The ‘80%/20%’ estimate in the payroll of the value of the business travel deduction for travel allowances versus the final calculation by SARS on assessment of the business travel deduction using the actual business travel kilometers from the logbook (multiplied by the Cost Scale rate/km).
2. The employee’s kilometers (business and private) for the year are estimated in the payroll when forecasting the value of the travel allowance amount for the year ahead, whereas at the end of the tax year the actual kilometers travelled from the logbook are used for the income tax calculation.

The inevitable difference in the number of kilometers will result in a difference between the remuneration and the income value that is calculated SARS For assessment.

7. Income Tax calculation on Assessment
Every employee who is paid a travel reimbursement, should keep a logbook of his business travel if the rate/km paid by the employer exceeds the Prescribed rate/km, resulting in a code 3702 on his tax certificate.
In fact, all employees that travel for business purposes should maintain a logbook irrespective of which of the three methods of business travel compensation the employer uses.
Employers should consider setting up standard spreadsheets for the employee’s weekly / monthly business travel claim form that contains at least the following fields that are required for the logbook:
• Date
• Number of business kilometers (total for the day)
• Reason for travel (name of the client / area / reason etc.).
This spreadsheet then doubles as the employee’s logbook at the end of the tax year, as well as being used by the employer to administer the travel reimbursement and management information.

6. Summary of the Main Aspects of Travel Reimbursements
The following are the main aspects of a travel reimbursement:
1. Employees who qualify for a travel reimbursement in terms of section 8(1)(b)(iii) are those who:
a. Travel for business purposes (with a valid driver’s licence),
b. In a motor vehicle that is privately-owned.
2. The employer:
a. Must set the rate/km for travel reimbursements in its travel policy
b. May only pay a travel reimbursement to ‘qualifying’ employees
c. Must process the travel reimbursement through the payroll
d. Must allocate the correct tax certificate codes depending on the rate/km used
e. Must report the travel reimbursement correctly on the tax certificate.
3. The employee:
a. Must claim his business travel in accordance with the employer’s policy and procedures
b. Should maintain a business travel logbook to be in a position to claim business travel expenses
c. Should claim business travel expenses if there is taxable income by submitting his logbook details.
Note that a reimbursement for travel expenses is only a travel reimbursement if its value is calculated by:
• Multiplying the number of business kilometers travelled
• By a rate per kilometre.
Any other type of compensation paid by the employer in relation to the vehicle or the travel is either a travel allowance, or a normal reimbursement of an employer’s business expense incurred by the employee, or an additional payment to assist an employee with private travel costs (fully taxable with no deduction allowed).