4. SARS Interpretation of a Reimbursement
SARS interprets the concept of a reimbursement as follows: “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.”
This interpretation of reimbursements in general applies equally to the special category of travel reimbursements.
Travel Reimbursement vs Travel Allowance
The underlying principles for a travel reimbursement are similar to those for a travel allowance, but the method of calculation of the compensation, the taxation thereof, and the tax certificate reporting rules, differ radically.
The purpose of a travel reimbursement is to compensate an employee for travelling for business purposes in any motor vehicle that is privately owned – it is not to assist the employee to purchase a motor vehicle, nor is it to reimburse an employee for private travel expenses.
Reimbursements of Business travel expenses using Public Transport
A travel reimbursement is calculated by multiplying the number of kilometers travelled by a rate per kilometer, and there are rules that specify how it must be taxed and reported on a tax certificate.
The public transport vehicle can be a motor vehicle, a bus, a taxi, or a train, and the travel could be for either private or business purposes.
If the employer assists the employee financially for travel in public transport, then if the travel purpose is:
1. Business: Proof of the travel expense would allow the employer to pay a general reimbursement
2. Private: This financial assistance would be taxable with no deduction possible, reported as either an additional salary (code 3601) or preferably as a taxable general allowance (code 3713).
Employees that qualify for a travel Reimbursement
Travel reimbursements may only be paid by an employer to an employee who uses a privately-owned motor vehicle for business travel (and who has a valid driver’s licence).
The car does not have to be owned by the employee – it can belong to a friend or a family member.
The Employer’s Travel Reimbursement policy
One of the advantages to the employer of using travel reimbursements is that the employer has control over the rate/km used to calculate the reimbursement. The employer can decide to use any rate/km that he likes, or for that matter, a range of rates for different categories of employees.
In this way, the employer has control over the cost of business travel in his organisation.
Having decided on the rates per km that he is prepared to pay, the employer then has a duty to administer the travel reimbursements correctly in terms of the law.

3. Legal Framework for Travel Reimbursements
The travel reimbursement requirements are provided for in sections 8(1)(b)(iii) and (iiiA), as well as in the Fourth Schedule definition of remuneration subparagraph (cC) that was introduced with effect from 1 March 2018.
Outside of the legislation, the following documents are important:
• The ‘Fixing of Rate per Kilometer in Respect of Motor Vehicles’ Regulation [Gazette # 48162]
• The SARS BRS (Business Requirements Specification that provides the tax certificate reporting rules)
• The SARS IN14 (Interpretation Note number 14).
Section 8(1)(b)(iii) – ‘Deemed’ Rate per Kilometer: “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”
Section 8(1)(b)(iiiA) – ‘Actual’ Rate per Kilometer
The provisions of this subsection allow an employee to calculate a rate per kilometer that is based on the employee’s records of the actual costs of ownership of the vehicle including purchase costs, financing costs, and wear-and-tear.
Fourth Schedule Definition of Remuneration: “remuneration” means … including – (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 [described as the ‘Prescribed‘ rate in the SARS BRS] fixing the rate per kilometre under section 8 (1) (b) (ii) and (iii) to the actual distance travelled;
[subparagraph (cC) inserted into the definition with effect from 1 March 2018]
Before continuing with the discussion of the practical aspects of travel reimbursement administration, it is worth repeating a statement made in the SARS Interpretation Note # 14: “Any allowance, advance or reimbursement is a reflection of business-related expenditure or anticipated business-related expenditure of the employer.”

2. Travel Reimbursement Principles
The correct term for this special type of reimbursement is a “reimbursive travel allowance”, but to keep it short and sweet, the term “travel reimbursement” is used in this workbook. This is also sometimes referred to as Kilometer Reimbursement, Reimbursive travel or Km Reimbursement.
The name “reimbursive travel allowance” underlines the dual nature of this method of business travel compensation – it has an aspect of an allowance, but it is more closely aligned to a reimbursement – so I feel comfortable referring to it as a ‘travel reimbursement’.
It has the nature of a reimbursement because it is paid after being claimed by the employee as and when he travels for business purposes and incurs the employer’s business travel expense.
It is not paid regularly as is generally the case with allowances.
However, it is not a ‘true’ reimbursement because the exact value of the expense is not reimbursed.
The value to be reimbursed is estimated (or ‘deemed’) according to the requirements of section 8(1)(b)(iii) of the Income Tax Act (see the Legal Framework in the next section). Because it does not have an exact value, it moves the reimbursement somewhat towards being classified as an allowance, which is an amount that is “… based on the expected business-related expenditure.”
Reimbursements resulting from expenses incurred by an employee on behalf of an employer are always business related, and the same applies to travel reimbursements.
The employee claims the business kilometers that he travelled, the reimbursement is generally not taxable or if a portion of it is taxable then business travel expenses can be deducted on assessment if a logbook is submitted to SARS.
It is important to understand the difference between a reimbursement of an employee’s business travel expenses (the subject of this Chapter), and a reimbursement of an employee’s private travel expenses.
A reimbursement of private travel expenses is not provided for in the legislation.
However, some employers choose to financially assist an employee with private travel expenses, but this assistance would be fully taxable with no deduction possible, reported as either additional salary (code 3601) or preferably a taxable general allowance (code 3713).

1. Introduction to Travel Reimbursements
Of the three business travel compensation options, there are a number of reasons why employers choose travel reimbursements for their travel policy, but probably the main reason is because the concept is straightforward and easily understood, particularly by the employee who does the travel.

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 …
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.

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 the employer estimated the travel allowance value in case of an audit
6. Keep a written record of why the employer decided on the 20% inclusion rate if the employer applied this rate
7. Remind 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 the employer does, ensure that the employee understands that he is effectively paying the employer’s business travel expense out of his package).

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?
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.
‘Red flags’ equal ‘SARS audit’.

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%).

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

11 Payroll Calculation of Employees’ Tax
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.
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 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, SARS Interpretation Note # 14 states the following: “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.
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: “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.
Iif 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.
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.
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.