Travel Allowance & Tax Help...

[skedunk]

Hey, so I've taken a load of advice from this website so finally decided to jump in and register. Hopefully I can give something back somewhere along the line. Also, I need more advice!

There are a load of threads about car and travel allowances and I can't really make sense of it. I am getting a travel allowance of R7500 over and above my basic salary and am trying to work out how much I actually have to work with when I go shopping I also get a rate per km traveled for business.

I know about the 18 000 km personal use (or there abouts) and will rack up enough km to justify the allowance but I don't want to go spend the whole allowance then end up paying in from my basic after tax nor do I want to have to pay in when I do my return.

Can anyone explain (simply) how tax works on these things? I've read about 80% and all manner of things!

Thanks for any guidance here!

 

[gfmalan]

Easy one I think.

A travel Allowance is money given to you for business travelling.
Few years back, people made their travel allowance bigger as SARS had this 18k km personal km rule (like you mentioned). This was taken away as to many people misused the arrangement.

Now you get the travel allowance, and it is taxed 80% on the allowance itself.
It is your responsibility to keep a logbook with fuel & maintenance expenses. This you can use on the end of the tax year, to claim back the tax taken from you during the year for the allowances. (the 80% part)

In some cases, if your employer and you agree (on a monthly bases) that you definitely use all of the allowance for business, you can use the 20% rule. But this needs to be re-evaluated monthly. So in most cases the 80% tax would apply.

 

[gfmalan]

A different way to see it.
In short you’ve paid tax allready, so if you over spend, it’s not as if you need to pay in even more, it is more like you would get less back end of tax season.

You get a salary component, that amount put you in a certain tax percentage bracket, then you get the travel allowance component. You add 80% of that value to your salary component, then that amount put you in a tax bracket. This amount gets deducted monthly, and it's paid over to SARS by the employer.

SARS basically ask you to prove that you used this for business, and then they will give you the tax back on that portion.
For you to calculate what you can spend on shopping, would require a monthly calculation with the actual km reading, fuel and expenses.

 

[Stefanmuller]

A different way to see it.
In short you’ve paid tax allready, so if you over spend, it’s not as if you need to pay in even more, it is more like you would get less back end of tax season.

You get a salary component, that amount put you in a certain tax percentage bracket, then you get the travel allowance component. You add 80% of that value to your salary component, then that amount put you in a tax bracket. This amount gets deducted monthly, and it's paid over to SARS by the employer.

SARS basically ask you to prove that you used this for business, and then they will give you the tax back on that portion.
For you to calculate what you can spend on shopping, would require a monthly calculation with the actual km reading, fuel and expenses.

The problem is that many companies try to make salary packages more attractive to potential employees by structuring in a travel allowance when technically it is not needed. For example, a position offers a R40k salary for a job that is mostly office based (or in fact requires no travel at all). Instead of offering a straight forward salary of R40k, they structure it as R32k plus a R8k car allowance. Many people see this as a salary of R32k plus R8k to buy a car with that he can sommer get tax free too. The problem is that the employee wont be doing any business travel or very little, not justifying the R8k allowance. The 20% that was not taxed monthly will not be covered by the legitimate business travel done throughout the year and the employee will have a nice tax bill at the end of the year.

This gets even worse when the company also pays a per kilometre rate for business travel at the end of every month. While the first R3,18 of that rate will be tax free every month, the full reimbursive allowance will be taxable at assessment at the end of the year and added to the travel allowance meaning you require even more business kms to cover your untaxed portion. The only time having both a car allowance plus a reimbursive rate makes sense is when the reimbursive rate is much lower than the SARS rate for your vehicle and amount of km's you do.

It used to ne a big problem when the allowance was only taxed at 60%. With it being taxed at 80% now means its only the remaining 20% that could pose a tax problem at the end of the year instead of 40%.

Moral of the story is to structure your travel allowance to match your actual expected business travel, leaving a bit of leaway for extra kms. Rather than have to big an allowance.

 

[Venomous]

The travel allowance for vehicle purchase.
Will the vehicle be yours if you leave?

The petrol card - are they adding your petrol spend onto your salary - inflating the amount, and thus the amount of tax you pay?

 

[Venomous]

You should be recording your KMs.

Best you speak to a tax consultant...