The New Travel Allowances: How Do They Affect You and Are They Working?
Why did SARS make changes and to which type of travel allowance?
Travel allowances have been around for a long time. Initially, they gave considerable benefits to people earning salaries as the fringe benefits tax was less than the economic benefit. SARS in trying to close this gap have made many alterations to travel allowances which have made them quite complex.
There are three types of allowance compensating employees for business travel:
- Where the employer provides a company-owned car for the employee
- A travel allowance is given to some staff members whereby the employee uses his or her own vehicle
- A reimbursement of business travel expenses where the employee is paid a rate per kilometre travelled.
The third method has until now only applied if the employee did 12,000 kilometres or less business travel during the tax year. The company paid a per-kilometre rate, usually the SARS rate, currently R3.61 per kilometre. If the SARS rate was paid, the process was simple and no PAYE was deducted. If however the employer paid more than the SARS rate or paid out an actual allowance, then the difference was taxed and PAYE was deducted.
The problem with this third method was it was limited to staff doing 12,000 or less business travel kilometres.
The 2018/2019 changes are to the third method above and are intended to simplify matters for businesses, employees and SARS.
The changes made
SARS have scrapped the 12,000 p.a. kilometre cap and have encouraged employers to only pay out the SARS kilometre rate (i.e. to do away with the first two methods above). This will considerably simplify things for both sides as both employer and employee will have less administration workload. It will also make assessing taxes easier for SARS.
Examples best illustrate this -
Example 1: SARS rate of R3.61 per kilometre used to reimburse travel expenses.
Example 2: The employee does 30,000 kilometres business travel and is paid R5 per kilometre plus is given an allowance of R10,000.
In summary, the SARS revised allowance is clearly easier for all parties. However employees will almost certainly resist using this method, particularly the more senior employees who will see their travel allowance eroded.
Time will tell how successful the revised travel allowance will be.