[FAQ] Travel allowance on a rented vehicle

[FAQ] Travel allowance on a rented vehicle

• 27 November 2020
• Individuals Tax
• Piet Nel

Background

A taxpayer received a travel allowance under code 3701. He doesn't own a car but rents a car under a long term rental contract.

Will he be able to claim a deduction against this vehicle’s travel allowance and if so, how is it completed on his personal income tax return if there's no purchase price available?

Answer

Income Tax Act

In the notice in the Gazette, applicable to the 2020 year of assessment, “value” in relation to a motor vehicle used by the recipient of an allowance as contemplated in section 8(1)(b)(ii) and (iii) of the Income Tax Act, 1962, means—

(a) where that motor vehicle (not being a motor vehicle in respect of which paragraph (b)(ii) of this definition applies) was acquired by that recipient under a bona fide agreement of sale or exchange concluded by parties dealing at arm’s length, the original cost thereof to him/her, including any value-added tax but excluding any finance charge or interest payable by him/her in respect of the acquisition thereof;

(b) where that motor vehicle—

(i) is held by that recipient under a lease contemplated in paragraph (b) of the definition of “instalment credit agreement” in section 1 of the Value-Added Tax Act, 1991; or

(ii) was held by him/her under such a lease and the ownership thereof was acquired by him/her on the termination of the lease, the cash value thereof as contemplated in the definition of “cash value” in section 1 of the Value-Added Tax Act; or

(c) in any other case, the 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.”

Application of the principles

Item (b) would apply where the vehicle was held under a lease, and (a) or (c) in all other instances. You’ll notice that it specifically excludes finance charges.

The return of income, the ITR12, require detail relevant to the ‘Cost Price or Cash Value’ of the vehicle and then provides space for ‘wear and tear’. This should only be completed if the vehicle was not leased by the taxpayer. This is because section 8(1)(b)(iii) (in (aa)) deals with a ‘vehicle that is being leased’ and with any other vehicle (in (bb)).

The taxpayer would, in this instance, have had to provide the lease payments.

When completing the wizard, before the return is accessed, you must answer the question where you indicate that the taxpayer received a travel allowance (should be prepopulated, but if not, you answer that). You then capture the amount of the lease payments made during the year.

SARS, in their guide, states the following:

If you kept record of your actual expenses, complete the total amount for each of expense that you have incurred during the period 1 March to 28/29February. The following actual expenses can be claimed:

• ‘Fuel and oil’
• ‘Maintenance and repairs’
• ‘Insurance and license fees’
• ‘Wear and tear’ or ‘Lease Payment’
• ‘Finance Charges’
• ‘Other’

Remember to retain all proof of your expenses for a period of five years after the date of submission of your return. If you claim actual expenses (and can furnish accurate data) there is a limitation on the amount that you may claim for lease payments, finance charges and wear and tear

Webinar Commentary

Further webinar commentary on Travel Allowance can be accessed here.

0 COMMENTS

LEAVE A COMMENT