[FAQ] The deduction of travel expenses when no travel allowance is received

[FAQ] The deduction of travel expenses when no travel allowance is received

• 30 July 2021
• Individuals Tax
• The Tax Faculty Tax Specialist

This article is based on tax law for the year ending 28 February 2021.

Background

A taxpayer is receiving two sources of income: a pension and a salary from the COGTA Department. He works for the COGTA as a headman, which is a community service role. He is reimbursed for his services. This job requires him to travel to governmental meetings and community meetings in order to assist the community. He does not receive a travel allowance. At the moment, the PAYE deducted is not enough and he pays a substantial tax amount. He is under 65.

• Is it possible for him to claim a deduction for the money he spends on his travelling expenses?
• What expenses is he allowed to claim against this income as he spends most of the money on fuel and the vehicle?
• If he can claim any deductions, how far back can he go back to claim these amounts as deductions?

Answer

The Income Tax Act

At issue here is whether the services are rendered by the individual in a capacity as a person carrying on a trade independently. Generally speaking, a person deriving an amount (in respect of services rendered) by way of a fee would be in receipt of remuneration UNLESS the individual rendered the services in the course of a trade carried on independently (as required by proviso (ii) to the definition of remuneration in paragraph 1 of the Fourth Schedule to the Income Tax Act) by him or her).

We don’t know if it is relevant here, but you must remember that, a person “shall not be deemed to carry on a trade independently as aforesaid if the services are required to be performed mainly at the premises of the person by whom such amount is paid or payable or of the person to whom such services were or are to be rendered and the person who rendered or will render the services is subject to the control or supervision of any other person as to the manner in which his or her duties are performed or to be performed or as to his hours of work”. See the proviso to paragraph (ii) of the definition of ‘remuneration’ in paragraph 1 of the Fourth Schedule.

The legal relationship between the parties must therefore be gathered from the terms of the (written) agreement between them. The general principle was explained as follows by Judge Streicher in the Niselow case. The Judge said that "… an employee is a person who makes over his or her capacity to produce to another; an independent contractor, by contrast, is a person whose commitment is to the production of a given result by his or her labour…" The judge then concluded by saying that the relationship between the parties must remain one in terms of which the person doing the work undertook to produce a certain result and not to render personal services to person paying for it to be a contract in terms of which independent services are rendered.

You must refer to Interpretation Note 17, Issue 4, for more information. The pension will not be derived in the course of a trade carried on independently by the person.

As an independent contractor, as it is colloquially known, the individual will then be able to make a deduction against the fee income. The individual must base the amount of the deduction on actual costs (section 11(a), (d), (e) and 24J) actually incurred and make an adjustment in terms of section 23(g) for the private use element. The adjustment, under section 23(a) or 23(g), in respect of non-trade related travel, such as private travel, must be based on a logbook.

Webinar Commentary

Refer to the following webinar: Current Tax Issues for Individual Taxpayers 2021 here.

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