A taxpayer does not receive a travel allowance but total income is generated by 80% commissions. He has always used the travel allowance table to get a deemed fixed cost and rate per km along with his logbook, to calculate the travel claim for business in prior years. SARS auditors have come back this year and stated only actual costs will be considered. The taxpayer pays cash for all his vehicle expenses, how does he then apportion a fix cost to this for business travel?
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
It was not correct to use the “deemed fixed cost and rate per km” to make a deduction in this instance. The rate per kilometre fixed by notice (in the Gazette) for the business travel - in terms of section 8(1) of the Income Tax Act - is ONLY available to a person not in receipt of an allowance, such as a sole trader; independent person or commission earner. The principle is that the individual must (or can only) base the deduction on the costs actually incurred (under section 11(a), (d), (e) and 24J of the Income Tax Act). These expenses must then be adjusted to in terms of section 23(g) (or 23(a)) for the private use element. This relates to the ‘non-trade related travel expenses’, such as private travel, and must be based on a log book.