Client receives a travel allowance or uses own car to earn a commission. The car is in the name of his wife or someone else. Can we still claim the business travel even if the car is not in the name of the taxpayer? How would we overcome this? Could she h
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
There is a difference.
Under a travel allowance the amount that must be excluded under section 8(1) of the Income Tax Act, from the allowance, the following is relevant:
You didn’t mention the manner in which the husband obtained the right to use the vehicle. Or whether the amount expended by the taxpayer on travelling on business was determined by using accurate data. We therefore accept that the reduction was done based on accurate data. The motor vehicle was probably “acquired by that recipient under a bona fide agreement of sale or exchange concluded by parties dealing at arm’s length”, and we accept that it was also NOT “held by that recipient under a lease”.
The wear and tear, for purposes of section 8(1)(b)(iiiA) and where accurate data is used, refers to the cost of the vehicle and to “the date of original acquisition by that recipient”. The law therefore requires that the vehicle must have been acquired by the recipient of the allowance (or leased). We have already indicated that we don’t know on what the ‘deduction’ was made in the return. From the facts it appears that it could not have been on the basis that the husband acquired the vehicle. This applies to the previous years of assessment as well.
The only option that then remains, is the “in any other case” referred to in annual notice where the rate per kilometre is fixed – in terms of section 8(1)(b)(ii) and (iii) of the Income Tax Act. In terms thereof, “value” in relation to a motor vehicle used by the recipient of an allowance will be “market value of that motor vehicle at the time when that recipient first obtained the vehicle or the right of use thereof, plus an amount equal to value added tax which would have been payable in respect of the purchase of the vehicle had it been purchased by the recipient at that time at a price equal to that market value.”
If the client didn’t receive an allowance, the deductions are made under the normal provisions of the Act, section 11(e) read with binding general ruling 7. It requires the taxpayer to adjust for private use, in terms of section 23(g). But all these provisions require the relevant expense or cost to have been actually incurred.