An employee receives a car allowance (SARS source code 3701) of which 80% is for business purposes. He also submits an expense claim for business kilometers traveled and is reimbursed at the rate of R3.61. Must this expense claim be taxed or not?
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
We actually understood your original request exactly as you now explain the facts. All that is added is a clarification of the 80% principle and the amount at which the person is reimbursed.
The principle, as we covered in the first response, is that these amounts are included in taxable income of the taxpayer unless the taxpayer can prove that they were “actually expended on travelling on business” – see section 8(1) of the Income Tax Act.
The fact that the amount may or may not be subject to the withholding of employees’ tax, is irrelevant in this regard – or that only 20% of the allowance in included in remuneration for purposes of employees’ tax. Both the amount of the allowance, the full amount and not only the 20% portion, and the reimbursements of travel expenses, will have to appear on the IRP5 issued to the employee at the end of the year of assessment.
Whilst the reimbursement is done at “the rate per kilometre for the simplified method in the notice fixing the rate per kilometre under section 8 (1) (b) (ii) and (iii) to the actual distance travelled”, paragraph (cc) of the definition of remuneration, in paragraph 1 of the Fourth Schedule to the Income Tax Act, doesn’t apply.
According to the 2019 guide for employers in respect of allowances – revision 7, the code 3701 must be used where a “fixed travelling allowance is paid”. The guide doesn’t deal with your scenario. It states that the code 3703 must be used where the person is “reimbursed at not more than the prescribed rate per kilometer and no other compensation paid (travel allowance)”. Code 3722 applies to the ‘portion above the prescribed rate’.
It appears, form the SARS guides, that the code 3702 may well have to be used for the reimbursement. Code 3702 amounts are not subject to the withholding of employees’ tax, but must appear on the IRP5 of the employee concerned.