By Anja van den Berg
The Covid-19 pandemic, and subsequent lockdowns, kept most employees from business travel.
If you travelled less and still received a travel allowance as a fixed monthly cash payment, you might face tax implications when you submit your personal income tax return for the 2020-2021 tax year.
Yolandi Esterhuizen, a registered tax practitioner and compliance manager at Sage, talks us through the process:
Taxation of a travel allowance on the payroll
- Pay-as-you-earn (PAYE) must be withheld from 80% of a travel allowance unless the employer is satisfied that the employee will use the vehicle at least 80% for business travel, in which case PAYE on 20% of the travel allowance must be withheld.
- If you receive a monthly travel allowance of R1 000, tax should be calculated on either R800 or R200, depending on how often you travel for business.
Personal income tax assessment
- When you submit your personal income tax return, you may claim a deduction against the allowance based on actual expenditure per kilometre or the prescribed rate per kilometre determined by the Finance Minister.
- The deemed rate is determined by a scale based on the value of the vehicle. The prescribed rate is a simplified, per kilometre rate (currently R3,98), which you may use if you receive no other compensation for business travel.
- The amount that will be included in the employee’s taxable income on assessment is the following: travel allowance minus (business kilometres travelled × expenditure per kilometre). The expenditure is either the actual cost, deemed rate or the prescribed rate per kilometre.
- Examples of actual expenditure include wear and tear, lease payments, fuel, oil, repairs and maintenance, car licence, insurance and finance charges, some subject to certain limits.
An example of how your tax picture could change
Imagine your travel allowance is based on a typical kilometreage of 20 000 business kilometres a year, but you only travelled 10 000 business kilometres this year due to the pandemic.
Your excess travel allowance because of reduced business kilometres should be included in your taxable income for the tax year (March 2020 to February 2021).
If you received a travel allowance of R3 000 per month and your employer deducted PAYE on 20% of the amount each month, tax on 80% of the remaining allowance must be paid on assessment if no business travel took place.
How to prepare for the 2020-2021 tax year
To eliminate any unpleasant surprises on assessment of your tax return, Esterhuizen suggests the following:
- Employers should review and discuss the taxability of the travel allowance with affected employees. They may have to adjust the PAYE withholding from 20% to 80%.
- Employees should review their travel allowance with their employment establishments. As an employee, you may have to consider a reduced travel allowance for the remainder of the tax year. Alternatively, you can request that your employer withhold additional PAYE each month. This option will ensure that you won’t have to pay in a substantial amount upon assessment. Seek the advice of a tax practitioner if you are not sure of the tax implications.