A taxpayer who is an expat was insufficiently taxed due to a car allowance being taxed at 80% instead of 100%. He was then advised of the difference and the employer was happy to process the difference however the auditors have grossed up the tax liabilit
Author: The Payroll Authors Group of South Africa
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
When dealing for the provisions of the Fourth Schedule, the employer needs to gross-up the remuneration in the same ratio as the period during which the income was earned which bears to a full year. Please refer to the paragraph on “Annual equivalent” in the SARS Guide for employers in respect of Employees Tax”. The formula to be use to do this gross up is: Total remuneration received ÷ pay periods worked x pay periods in tax year. The employer then calculates the PAYE on the annual equivalent calculated and then gross-down the calculated PAYE by ÷ pay periods in tax year x pay periods worked. This then represents the final PAYE for the relevant period concerned (pay periods worked). In terms of the definition of remuneration in the Fourth Schedule, only a 80% (or 20% portion, if applicable) of a travel allowance is subject to the deduction of PAYE. (cA) 80 per cent of the amount of any allowance or advance in respect of transport expenses referred to in section 8 (1) (b), other than any such allowance or advance contemplated in section 8 (1) (b) (iii) that is based on the actual distance travelled by the recipient: Provided that where the employer is satisfied that at least 80 per cent of the use of the motor vehicle for a year of assessment will be for business purposes, then only 20 per cent of the amount of such allowance or advance must be included; However, when the individuals Final tax liability is determine with his income tax assessment process, such individual should claim his business expenses against this travel allowance. If no claim has been made or the claim represents less than 20% of the total allowance, a debit will be due to SARS as a result of this. The travel allowance less any allowable business expenses will be fully taxable on assessment. With regards to grossing-up: this must be done by the employer to determine the individuals PAYE liability for each pay period. However, on assessment no grossing-up is done.