Is it correct that an amount paid by an employer to an employee as an allowance for relocation/transfer costs is taxable? The company didn't pay the expense and paid the employee an amount of R12,000 as per the employment agreement.
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The relevant provision in the Income Tax Act is found in section 10(1)(nB). Note that it was amended with effect 1 January 2016 to remove SARS’s discretion.
Basically the sub-section requires that the employer must have ‘borne the expense’. The issue is therefore whether or not the payment of an allowance would constitute the employer having borne the expense – i.e. the meaning of the word ‘borne’.
It is only in item (ii) that it refers to “the cost incurred by the employee”.
We agree that an allowance must be treated in terms of section 8(1), but note section 8(1)(a)(ii).