General Tax queries

[Greg C]

For those of you requiring tax queries and annoying finance questions,Finance solutions and advice. This is the thread for you.

 

[Inn3rs3lf]

Perfect!

What i would like to know is this:

I am starting my own IT company next year doing end user on-site support, and will be running it from where I live. Now, where I live is a built on home onto my father-in-laws place. So what I would like to know is, do I charge my company rent, or does he? And how does this correlate to the whole tax process?

Any info would be appreciated.

 

[Greg C]

Hi Inn3r

An excellent question.Just to clarify some information on your case. Will any intellectual property be sold? Ie your own sole proprietory system that type of thing? If yes you should register your company as a service and protect your intellectual capital via patents etc

Anyway I digress a tad there.
Your company may deduct rent as an expense as long as it is in the production of income.
What this defines to is that only the amount of rent relating to the portion of the house that you use may be deducted
Calculate the total square metres of the place you stay in and divide by the amount you pay for rent and multiply by the amount of square metres you use for business purposes,if its the whole room ok,BUT i highly doubt it is as there may be a bedroom with a bed where you and your gf/wife sleep etc.ONLY on the rooms that you use for business purposes may be deducted.

AS for who charges your company the rent,you do not own the place(under my understanding)you father in law does.Your father in law must charge you rent, the rent you stay in for personal capacity cant be tax deductible,but the business portion is.

Hope this helps

Perfect!

What i would like to know is this:

I am starting my own IT company next year doing end user on-site support, and will be running it from where I live. Now, where I live is a built on home onto my father-in-laws place. So what I would like to know is, do I charge my company rent, or does he? And how does this correlate to the whole tax process?

Any info would be appreciated.

 

[Inn3rs3lf]

Thank you for your reply Greg.

No proprietory systems will be sold. Will be doing support, using products and software from third-parties.

I will be using my office only as my workplace, so nothing else in the house will be used for business. Plus, we don't pay rent at all. It was a wedding gift from my in-laws. So we are living there rent, electricity, and water free. With my situation, do I even need to charge for rent? Seeing as that we don't pay? Or will this situation make it that the company will have to pay my father-in-law, as he is the owner of the property.

 

[Messugga]

Hi Greg,

I have a bit of a silly question and I don't know whether there's a satisfactory answer. I'm working for a company that implements large systems, which means I spend a good amount of time at the client's premises. I'm a normal, salaried worker and registered at SARS as such, if I am not mistaken. I'm currently spending around R2 000 per month on petrol, excluding other costs. The company has given me a phone to use and all of that, but the travel costs is considered travel to my place of work, so I have to foot the bill there.
Anyway, I'm not feeling particularly patriotic, and would like to end up paying less tax. I don't have a RA or any other such deductibles. Medical aid goes off of my wife's salary. Is there a way I can deduct travel and/or any other costs? If it's purely administrative in nature, the company I work for should be plenty accommodating.

A previous company I worked for had some finance guys work technical wizardry and they ended up claiming large amounts back from SARS due to them being "contractors" or some such, although they were permanently employed. I'm not a finance guy, however, so I don't know these tricks. Could you maybe point me in the right direction?

 

[Greg C]

You are on the right track my good sir.

As you dont pay tax currently now in a personal capacity it does not affect you personally in any way.
However if your father in Law did charge rent, your company would need to pay for it,and then may be deducted so in this case I would suggest having your father charge rent and your company pay it as at the end of the tax year you may deduct it and thus REDUCE your overall companies tax payable.

Let me just say this though.Whatever your decision,do make it within the next year.As you cant all of a sudden start deducting rent after a tax assessment,as SARS will ask why all of a sudden?Why didnt you before.So choose yes or no but there is no maybe.

My suggestion,assuming your business will be somewhat profitable.Have your father in law charge you appropriate rent(appropriate meaning an amount relative to size and place,not R500 for instance in Sandton) and then deduct it

Thank you for your reply Greg.

No proprietory systems will be sold. Will be doing support, using products and software from third-parties.

I will be using my office only as my workplace, so nothing else in the house will be used for business. Plus, we don't pay rent at all. It was a wedding gift from my in-laws. So we are living there rent, electricity, and water free. With my situation, do I even need to charge for rent? Seeing as that we don't pay? Or will this situation make it that the company will have to pay my father-in-law, as he is the owner of the property.

 

[Greg C]

Ah Travel allowances.

A very nice topic indeed.The wizard you speak of is a tax man who knows what he is doing as do I and I will attempt to help you in this regard

Answering your first question.SARS recognises travel allowances being from the place of business A to place of business B, certain fuel,and maitenance costs depending on whether you were given a company car etc
So in essence ,you cannot claim travel allowances if you travel from home to work,only from work to a client

You can understand that contractors,do alot of travelling.

Many allowances may be given here depending on your company and the payroll but I will give some ideas as to how they got so many

One the company gave a company car to the contractor,and the contractor bared the maintenance and fuel costs,all deductible using a special table relevent to business km travelled based on the value of the vehicle

Or if you travelled in your own car,you may claim the business km portion back at a certain given rate.

There are countless scenarios and very hard to identify on your situation, but it is recommended that you read the following link
http://pghaccountants.co.za/travel-allowance-for-20122013-tax-year/
Ask me questions if you need clarification, and enquire to your company whether they do allow travel allowances.
IF they do get yourself a little note book,and note the km you travel for all business purposes to clients,etc
and start claiming my friend.

Hi Greg,

I have a bit of a silly question and I don't know whether there's a satisfactory answer. I'm working for a company that implements large systems, which means I spend a good amount of time at the client's premises. I'm a normal, salaried worker and registered at SARS as such, if I am not mistaken. I'm currently spending around R2 000 per month on petrol, excluding other costs. The company has given me a phone to use and all of that, but the travel costs is considered travel to my place of work, so I have to foot the bill there.
Anyway, I'm not feeling particularly patriotic, and would like to end up paying less tax. I don't have a RA or any other such deductibles. Medical aid goes off of my wife's salary. Is there a way I can deduct travel and/or any other costs? If it's purely administrative in nature, the company I work for should be plenty accommodating.

A previous company I worked for had some finance guys work technical wizardry and they ended up claiming large amounts back from SARS due to them being "contractors" or some such, although they were permanently employed. I'm not a finance guy, however, so I don't know these tricks. Could you maybe point me in the right direction?

 

[Greg C]

Keep in mind,that yes you are getting travel allowances that are in essence added back onto your payroll,ie more salary to compensate your cost,but in the end,SARS are not stupid in any way. You are not getting any profit from it,even though it does feel like you are. They are there to attempt to par you off,and cover your expenses,not for you to profit off of it.Previously this was a hot subject and grossly misused by taxpayers,hence why it is so tight now.

You should however if you do any travel be reimbursed for your travels,but if you do this note the kms. It is not your responsibility unless under your contract that you not be reimbursed,but in practice we know that fighting with your company to pay you back on travel can be a very harmful to your image,so tread lightly

Ah Travel allowances.

A very nice topic indeed.The wizard you speak of is a tax man who knows what he is doing as do I and I will attempt to help you in this regard

Answering your first question.SARS recognises travel allowances being from the place of business A to place of business B, certain fuel,and maitenance costs depending on whether you were given a company car etc
So in essence ,you cannot claim travel allowances if you travel from home to work,only from work to a client

You can understand that contractors,do alot of travelling.

Many allowances may be given here depending on your company and the payroll but I will give some ideas as to how they got so many

One the company gave a company car to the contractor,and the contractor bared the maintenance and fuel costs,all deductible using a special table relevent to business km travelled based on the value of the vehicle

Or if you travelled in your own car,you may claim the business km portion back at a certain given rate.

There are countless scenarios and very hard to identify on your situation, but it is recommended that you read the following link
http://pghaccountants.co.za/travel-allowance-for-20122013-tax-year/
Ask me questions if you need clarification, and enquire to your company whether they do allow travel allowances.
IF they do get yourself a little note book,and note the km you travel for all business purposes to clients,etc
and start claiming my friend.

 

[Messugga]

Keep in mind,that yes you are getting travel allowances that are in essence added back onto your payroll,ie more salary to compensate your cost,but in the end,SARS are not stupid in any way. You are not getting any profit from it,even though it does feel like you are. They are there to attempt to par you off,and cover your expenses,not for you to profit off of it.Previously this was a hot subject and grossly misused by taxpayers,hence why it is so tight now.

You should however if you do any travel be reimbursed for your travels,but if you do this note the kms. It is not your responsibility unless under your contract that you not be reimbursed,but in practice we know that fighting with your company to pay you back on travel can be a very harmful to your image,so tread lightly

Great stuff, thanks. Would my home qualify as a "place of employment" if I were to work from home? I get reimbursed for company travel already by means of logging distance travelled. The bit where I want to save is with regards to travel from my home. I'm just spit-balling here, so if it's not possible to make such deductions, that's fine.
I see you are based in Randburg and I assume you are a tax consultant? I wouldn't mind discussing things within more detail with you to see whether there is any playroom available. I suspect that there isn't much, however.

 

[Greg C]

Great stuff, thanks. Would my home qualify as a "place of employment" if I were to work from home? I get reimbursed for company travel already by means of logging distance travelled. The bit where I want to save is with regards to travel from my home. I'm just spit-balling here, so if it's not possible to make such deductions, that's fine.
I see you are based in Randburg and I assume you are a tax consultant? I wouldn't mind discussing things within more detail with you to see whether there is any playroom available. I suspect that there isn't much, however.

Very clever question. Here it is important to define a few certain things that will make things a tad clearer

One under what I understand,you dont have your own business,you do work for an employer you just do your work at home.In this case no,as in your contract,it states that your place of employment is the offices or wherever your offices are,so just make sure according to your contract if this is the case.

If you do have your own business then you may define the place(your home) as ''place of employment'',pay yourself fringe benefit to the payroll for the travel allowance(assuming you kept a log book),if you travel from your home(place of employment defined) to a client.

A nice tip,would be to buy a vehicle under your companies account,give the right of use of vehicle to yourself,and pay the fringe benefit to you as a personal capacity,and have the company pay according to the tables defined for maintenance and fuel,and ofcourse business km travel at all times keeping in MIND not PERSONAL km,only BUSINESS KM.So fetching children from your home/business is not claimable so becareful here.

 

[Greg C]

Oh and just to answer your question

I am based in Randburg, I am not employed as a tax consultant.I am very interested as well as good at tax,have my undergraduate and postgraduate in personal and business financial planning with tax. So please none of what I am saying is bull**** baffles brains.

You are very welcome to message me or we can meet for drinks to discuss what you want. No predefined costs,whatever you possibly feel the service deserves if we do this ofcourse.Otherwise continue to post,and I will do my best to help you in every way

Very clever question. Here it is important to define a few certain things that will make things a tad clearer

One under what I understand,you dont have your own business,you do work for an employer you just do your work at home.In this case no,as in your contract,it states that your place of employment is the offices or wherever your offices are,so just make sure according to your contract if this is the case.

If you do have your own business then you may define the place(your home) as ''place of employment'',pay yourself fringe benefit to the payroll for the travel allowance(assuming you kept a log book),if you travel from your home(place of employment defined) to a client.

A nice tip,would be to buy a vehicle under your companies account,give the right of use of vehicle to yourself,and pay the fringe benefit to you as a personal capacity,and have the company pay according to the tables defined for maintenance and fuel,and ofcourse business km travel at all times keeping in MIND not PERSONAL km,only BUSINESS KM.So fetching children from your home/business is not claimable so becareful here.

 

[Skywalker42]

Hi Greg C
I refer to the table in that article regarding the Fixed cost, Fuel cost and Maintenance cost.

Do you claim all three of them or do you choose between Fixed cost and Fuel/Maintenace cost ?

My situation is as follows:
Value of vehicle is less than R 60 000. ( My own vehicle, not a company car)
More that 80% of the use of the vehicle is for business purposes.
I travel less than 8000 km per year.

Currently a get a flat salary package, no allowances etc.
My plan is to restructure my salary as follows: Fixed Cost = R 19 492 / 12 = R 1 624 per month.
Because more that 80% of my travel is for business purposes, only 20% of the allowance is taxable.
20% x R 1 624 = R 325. I can then lower my taxable salary by R 1 299 ( 80% of the allowance) and thus pay less PAYE.

From the first sentence in that article:
where no records of actual costs are kept are determined by using the following table.

I take that to mean I do not have to keep a log book. Is that correct ?

Am I understanding all of this correctly ?

Thanks for your time.

 

[Greg C]

You are a little off,I feel as though the tables were a bit confusing let me try clarify

You do not receive a fixed allowance for travel so we can eliminate that
You are reimbursed I see
Lets begin
The rate per kilometre for business travelling is deemed to be R3,05.Say your company gives you R3.50 per business KM travelled
Log book kept of business Km (lets say you did 6000kms) x R3,05 deemed = R18 300 and the taxable amount is accordingly is
R41 700(R60 000(R3,50 x 6000 km)- R18300

Allowance Received R21 000
Fixed cost as per table relating to your cars expense
R60 000 on table R19 492

Fixed cost per km (19 492/total km travelled for year,lets say YOUR TOTAL km travelled is 16 000 = R1.21825
Fuel cost per km per table R0.737
Maintenance cost per table R0.257
Total cost per km R2.21225
Business Km 6000 x R2.21225 (R13 273)
Taxable amount R7726

Hi Greg C
I refer to the table in that article regarding the Fixed cost, Fuel cost and Maintenance cost.

Do you claim all three of them or do you choose between Fixed cost and Fuel/Maintenace cost ?

My situation is as follows:
Value of vehicle is less than R 60 000. ( My own vehicle, not a company car)
More that 80% of the use of the vehicle is for business purposes.
I travel less than 8000 km per year.

Currently a get a flat salary package, no allowances etc.
My plan is to restructure my salary as follows: Fixed Cost = R 19 492 / 12 = R 1 624 per month.
Because more that 80% of my travel is for business purposes, only 20% of the allowance is taxable.
20% x R 1 624 = R 325. I can then lower my taxable salary by R 1 299 ( 80% of the allowance) and thus pay less PAYE.

From the first sentence in that article:
where no records of actual costs are kept are determined by using the following table.

I take that to mean I do not have to keep a log book. Is that correct ?

Am I understanding all of this correctly ?

Thanks for your time.

 

[Greg C]

O and to answer your questions directly,that blow your attempted calculation out of the water so to speak(no offence ofcourse)
Percentage of business travel means nothing to sars. Its kind of like saying to your lecturer I received about 50% for my test... DID YOU FAIL? or did you pass,I need an exact amount.

You must at all times keep a log book for business km travelled preferably,total km travelled as well.
Otherwise you can see its an amount for fuel and maintenance per km, how do you multiple for a percentage of nothing travelled?

Anyway,not looking to embarras you just trying to help. Keep a log book,of business travelled and total km travelled.

And secondly an allowance will not and I repeat WILL NOT ''less PAYE''.
It is a fringe benefit,meaning you will pay it generally and the company will refund you to the SAME state as you were before.That is the objective,not to profit off it by reducing PAYE.

If no records are kept,no travel allowance can be claimed.

Hope this helps,let me know if anything is unclear.

 

[Skywalker42]

O and to answer your questions directly,that blow your attempted calculation out of the water so to speak(no offence ofcourse)
Percentage of business travel means nothing to sars. Its kind of like saying to your lecturer I received about 50% for my test... DID YOU FAIL? or did you pass,I need an exact amount.

You must at all times keep a log book for business km travelled preferably,total km travelled as well.
Otherwise you can see its an amount for fuel and maintenance per km, how do you multiple for a percentage of nothing travelled?

Anyway,not looking to embarras you just trying to help. Keep a log book,of business travelled and total km travelled.

And secondly an allowance will not and I repeat WILL NOT ''less PAYE''.
It is a fringe benefit,meaning you will pay it generally and the company will refund you to the SAME state as you were before.That is the objective,not to profit off it by reducing PAYE.

If no records are kept,no travel allowance can be claimed.

Hope this helps,let me know if anything is unclear.

Understood and not offended.

Not sure if I agree with the bolded part. Surely if you can split your salary into two components:
"salary" and "allowance" and you can make the allowance component "not taxable" or "partially taxable" you can "score" on PAYE. If you can have an agreement with your employer that says something like:
Instead of paying me R 10 000 salary, just pay R 8000 salary and R 2000 for a travel allowance.

Have a look here...
Reimbursive Payments - Since March, 1999 - where an employee receives a Travel Allowance and/or any of the employee's vehicle expenses are paid by the employer, all Reimbursive Travel Payments based on kms travelled will be taxed as though it was a Travel Allowance (regardless of rate and distance claimed). Thus, 60% of reimbursive travel expenses will be taxed. Where the employee has no Travel Allowance and no vehicle expenses are paid by the employer, the full amount of the reimbusive payment is non-taxable UNLESS the rate paid per kilometre exceeds R2.92 OR the annual distance travelled exceeds 8000km in which case the full reimbursive amount is taxable income.

Have to go, will be back later...

 

[Greg C]

Pity that quote is outdated.
Under reimbursive allowance I have yet to come accross 60% or anything relating to this percentage for the 2013 tax year.
The R2.92 is R3.05 just to prove that the above is out of date,The limitation of 8000kms has not changed.

Under your scenario you are attempting to seperate the salary components into a salary and an allowance.
The allowance ie Travel allowances,is a fringe benefit. Included in a persons gross income and affects an individuals Taxable income.I am very confused on what tax calculation you or the payroll systems nowdays do that seperates it.It will eventually be taxed but not taxed or dealt with on a seperate basis.

Section 8(1)(a)(i) allowance or advance (except any portion thereof expended for specified purposes) in the case of travel allowances,subsistance allowances,allowances for holding public office is to be INCLUDED in taxable income.

Understood and not offended.

Not sure if I agree with the bolded part. Surely if you can split your salary into two components:
"salary" and "allowance" and you can make the allowance component "not taxable" or "partially taxable" you can "score" on PAYE. If you can have an agreement with your employer that says something like:
Instead of paying me R 10 000 salary, just pay R 8000 salary and R 2000 for a travel allowance.

Have a look here...
Reimbursive Payments - Since March, 1999 - where an employee receives a Travel Allowance and/or any of the employee's vehicle expenses are paid by the employer, all Reimbursive Travel Payments based on kms travelled will be taxed as though it was a Travel Allowance (regardless of rate and distance claimed). Thus, 60% of reimbursive travel expenses will be taxed. Where the employee has no Travel Allowance and no vehicle expenses are paid by the employer, the full amount of the reimbusive payment is non-taxable UNLESS the rate paid per kilometre exceeds R2.92 OR the annual distance travelled exceeds 8000km in which case the full reimbursive amount is taxable income.

Have to go, will be back later...

 

[Greg C]

Instead of paying me R 10 000 salary, just pay R 8000 salary and R 2000 for a travel allowance.
Either way you look at the above the 10 000 salary is gross Income
or you can have
Salary R8000
Fringe benefit:Travel allowance R2000

It still gets taxed either way

Pity that quote is outdated.
Under reimbursive allowance I have yet to come accross 60% or anything relating to this percentage for the 2013 tax year.
The R2.92 is R3.05 just to prove that the above is out of date,The limitation of 8000kms has not changed.

Under your scenario you are attempting to seperate the salary components into a salary and an allowance.
The allowance ie Travel allowances,is a fringe benefit. Included in a persons gross income and affects an individuals Taxable income.I am very confused on what tax calculation you or the payroll systems nowdays do that seperates it.It will eventually be taxed but not taxed or dealt with on a seperate basis.

Section 8(1)(a)(i) allowance or advance (except any portion thereof expended for specified purposes) in the case of travel allowances,subsistance allowances,allowances for holding public office is to be INCLUDED in taxable income.

 

[Skywalker42]

Pity that quote is outdated.
Under reimbursive allowance I have yet to come accross 60% or anything relating to this percentage for the 2013 tax year.
The R2.92 is R3.05 just to prove that the above is out of date,The limitation of 8000kms has not changed.

Under your scenario you are attempting to seperate the salary components into a salary and an allowance.
The allowance ie Travel allowances,is a fringe benefit. Included in a persons gross income and affects an individuals Taxable income.I am very confused on what tax calculation you or the payroll systems nowdays do that seperates it.It will eventually be taxed but not taxed or dealt with on a seperate basis.

Section 8(1)(a)(i) allowance or advance (except any portion thereof expended for specified purposes) in the case of travel allowances,subsistance allowances,allowances for holding public office is to be INCLUDED in taxable income.

I admit it is outdated, the amounts change as they do every year, but the principles are the same.
Also, because I disagree with you on some things doesn't mean I'm fighting you, I want to work WITH you.
You have knowledge about how the tax system works and I have a real bad attitude towards the tax system, but that's another story. What that means is that I have no intentention to be honest with the Receiver Of All My Revenue because in my view they are just legalised thieves.

Back to the rules and calculations, I got this from their latest online logbook:

Alternatively:
At the option of the employee, where the distance travelled for business purposes does not exceed 8000 kilometers per annum, no tax is payable on an allowance paid by an employer to an employe, up to the rate of 316 cents per kilometre, regardless of the value of the vehicle.

So, my point is that if this government can get so "creative" with their making all sorts of "rules" and "regulations", what stops me from getting creative with a logbook ? All you need is an agreement from the employer to play along and split the salary as I described previously. And pay less PAYE.

Do you see my approach and that it is "approved" by the ta-x man as per the above quote from their own "rules" ?

Cheers.

 

[Skywalker42]

At the option of the employee, where the distance travelled for business purposes does not exceed 8000 kilometers per annum, no tax is payable on an allowance paid by an employer to an employee, up to the rate of 316 cents per kilometre, regardless of the value of the vehicle.

R 3.16 x 8000 km = R 24 320. ( That is the amount that can be deducted from your taxable income )

I see that as GOOD for THE PEOPLE.

Do you agree ?

 

[Skywalker42]

Instead of paying me R 10 000 salary, just pay R 8000 salary and R 2000 for a travel allowance.
Either way you look at the above the 10 000 salary is gross Income
or you can have
Salary R8000
Fringe benefit:Travel allowance R2000

It still gets taxed either way

I can see where we misunderstand each other and that there is a point on which we disagree.

I quoted S-ARS's rules that states it is NOT taxable.

You imply as in the above quote that it IS taxable.

What now ? Do I believe you or SA.RS ?

I don't know what a fringe benefit is, am I missing something.
Tell me, but with some backup from SAR-S sources.

Sleep on it.