11. SARS ‘Cost Scale’ Table and Prescribed Rate
This section explains the principles of the SARS ‘Cost Scale’ table and the ‘Prescribed’ rate/km.
Principles
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.
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.
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 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’.
The ‘Cost Scale’ table returns a determined 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 ‘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.
2. The second column of the table contains a “fixed cost” value for the vehicle that provides for finance charges, insurance, depreciation, and licensing. 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 a determined value of R800 000 for the 2024 tax year. 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.
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.

10. An amount that is determined based on the employee’s work performance (from 1 March 2023).
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 for many years, apparently ‘approved’ by some SARS officials in earlier years, but this is only heard of 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 of Standardisation of Private kilometers is not allowed – it is outdated, defies logic, and is unfair to the employee.

9. Other Important Aspects of Business Travel Compensation
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 nor 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 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

8. Understanding ‘Private Travel’
‘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.
Please be note that the guidance that follows is Rob Cooper’s personal opinion and not that of SARS. It is not infallible, but it can help to analyse the problem, and hopefully come close to the correct answer.

Place of Residence
To help you to identify the place of residence correctly, it has been split into the many types of residence into two groups:
1. a ‘usual’ place of residence:
a. the employee’s regular home, or
b. the place where the employee returns to “after all his wanderings”.
2. a ‘temporary’ place of residence:
a. hotel room
b. guest house
c. rented accommodation
d. a friend’s home
e. …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.
Any travel to or from a short-term temporary place of residence is potentially business travel.
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’.

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, this has been split into the many types of places of employment into two groups –
1. a ‘usual’’ place of employment:
a. where the employee normally attends work, has a desk, reports for meetings, etc.
b. the place where he is normally directly controlled and supervised from.
2. a ‘temporary’ place of employment:
a. If the ‘usual’ place of employment is the head office, a branch office (or vice versa)
b. If the ‘usual’ place of employment is an office of the building company, a building site
c. In general, any place of work that is not the 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 the 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 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).

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.
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.

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 (which 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 …”.
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, 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 as 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.
Change to ‘private travel’ for Judges
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, 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.

6. Principles of Allowances, Advances and Reimbursements
Before being able to apply the requirements of each type of payment correctly, one must understand the legal characteristics of allowances, advances, and reimbursements.
Note that the allowances, advances, and reimbursements that are interpreted below are general in 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.
6.1 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.”
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 expenditures 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 anticipated business-related expenditure.
There are some key concepts to take note of in the above interpretation of allowances:
• The employer grants the allowance (i.e. the employer controls whether it is paid or not), but the employer –
o must be certain that the expense (travel for business purposes) will be incurred.
o must estimate a realistic (“expected”) value for the allowance.
• The allowance compensates the employee for incurring the employer’s business-related expenses.
• The employee need not submit proof of the expense to the employer (but for a travel allowance should/must keep a logbook to claim his business travel expenses from SARS on assessment).
6.2 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:
• 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, and where
• 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 analysis of the components of the interpretations of allowances and advances, it can be easily seen that the wording is identical except for the last point 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 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.
6.3 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:
• an employee incurred business-related expenses on behalf of an employer out of his own pocket
• and is subsequently reimbursed for the expenditure by the employer
• 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, 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:
• Instruction from the employer to incur the expense, and
• Proof of the actual value of the expense (vouchers, invoices, etc.) must be provided to the employer
• 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:
• Travel reimbursements (the reporting rules will be discussed in chapter 4)
• Subsistence allowances (which SARS deem to be a reimbursement if paid below the daily expense limits).
6.4 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 the same as that of the interpretation of an allowance with only one difference – proof of the business expenditure is required.
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 an ‘early’ reimbursement.
The following is a result of what has been discussed:
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.
3. The employer must ensure that a realistic amount is estimated for a travel allowance. 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’.
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 a hybrid between an allowance and a reimbursement but leans more towards being a reimbursement.

5. Legal Framework for Travel Compensation
The steps shown in the Tax 101 Comparison and their sequence reflect the Income Tax Act requirements.
5.1 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.
5.2 Section 23(m)
Section 23(m) was added to the Income Tax Act with effect from 1 March 2002. There is a misunderstanding that the deductions that are no longer allowed by section 23(m) include deductions for business travel expense claims.
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;
5.3 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;
Subparagraph (cC) was added to the definition of remuneration with effect from 1 March 2018.

4. PAYE vs Income Tax Comparison
• 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 paths of remuneration and income meet one another in the Fourth Schedule definition of remuneration, in which the preamble to that definition 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: Remuneration vs Income, and PAYE vs Income tax
• REMUNERATION AND PAYE:
• Step 1 – Nothing for REMUNERATION AND PAYE
• Step 2 – Nothing for REMUNERATION AND PAYE
• Determine REMUNERATION (Fourth Schedule definition)
• Step 3 – Plus: Defined inclusions of travel compensation
• Step 4 – Less: Paragraph 2(4) deductions
• Equals: BALANCE OF REMUNERATION.
• Step 5 – Calculate ‘Gross’ PAYE.
• Calculate: ‘NET’ PAYE
• Step 6 – Less: Section 6 ‘age’ rebates
• Step 7 – Less: Section 6A Medical Tax Credit (MTC)
• Step 8 – Less: Section 6B Additional MTC (AMTC)
• Step 9 – FINAL PAYE
• INCOME AND INCOME TAX:
• Step 1 – GROSS INCOME (ITA Section 1 definition) Plus: Section 1 special inclusions
• Step 2 – Less: Section 10(1) Exemptions
• Determine INCOME
• Step 3 – Plus: Unexpended section 8 allowances
• Step 4 – Less: Sections 11 and 23 deductions
• Equals: TAXABLE INCOME.
• Step 5 – Calculate ‘Gross’ Income Tax.
• Calculate: ‘NET’ INCOME TAX
• Step 6 – Less: Section 6 ‘age’ rebates
• Step 7 – Less: Section 6A Medical Tax Credit (MTC)
• Step 8 – Less: Section 6B Additional MTC (AMTC)
• Step 9 – FINAL INCOME TAX

The sequence of the nine calculation steps of PAYE and Income tax in the Comparison table is very important:
• 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).
• The business travel expense portions of the three travel compensation amounts are allowed to reduce remuneration and income as follows:
o 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.
o 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.

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 database 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 allowable 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. 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:
• Company motor vehicles (also referred to as ‘company cars’)
• Travel allowances
• 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 with 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 for private or business travel.
Private travel is thus a fundamental concept.
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:
• Company motor vehicles (referred to colloquially and in this workbook as ‘company cars’)
• Travel allowances
• Travel reimbursements.
It is not possible to discuss the three methods of travel compensation without an understanding of the ‘endgame’:
• How are they taxed in the payroll for PAYE purposes during the tax year, and
• 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, how to report it on tax certificates, and how this remuneration relates to income and income tax.
As we will see, the closer 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.