Changes to travel allowance could clamp travelling

The South African Revenue Service (SARS) have been making significant changes in order to increase their reserves and tighten up on unnecessary costs. Some of the changes are directly related to travel allowances, with changes to the percentage excluded from PAYE and with log books being made compulsory for every-one.

Sadiyya Mosam, Tax Consultant for PricewaterhouseCoopers (PwC) says, “Previously, taxpayers were using the travel allowance to their advantage but SARS is ready to clamp the tyres on offenders misusing travel allowances.”

What lies ahead?

Previously, taxpayers were entitled to two travel allowance benefits being granted by employees:

• Pay As You Earn (PAYE) is withheld from 60% of the travel allowance giving the taxpayer additional cash flow for eight extra months before having to pay SARS the money, if the money became due at all. From 1 March 2010 SARS will change this percentage. 80% of the allowance will become subject to PAYE. This will significantly reduce a taxpayer’s monthly cash flow.
• The second benefit of the current travel allowance structure is the considered business kilometre ruling. In terms of this rule, taxpayers had to limit their mileage travelled to 32 000 kilometres per year. The first 18 000 is deemed to be for private travel while the remainder 14 000 kilometres is then allocated to business travel.

This provided office based staff whose private travel exceeded the 18 000 kilometres to obtain a maximum tax benefit from their travel allowance in that they were allowed to claim a fictitious deduction thus using and possibly even abusing the travel allowance as a tax structuring tool.

Effective 1 March 2010, SARS will repeal the deemed business kilometre ruling making it compulsory for all taxpayers who wish to claim a travel allowance to keep log books.

Mosam concludes, “With these new developments soon to be implemented, employees should reconsider their respective travel allowances and determine if the allowance will still benefit them. If the outcome is negative, employees should change their salary packages to avoid potentially damaging issues the amendments might cause.”