1727. End of deemed travel allowances?
May 2009 – Issue 117
National Treasury has recommended that the deemed mileage and cost method of determining the deduction against a travel allowance granted to employees be scrapped during the 2010/11 tax year.
In its hey-day, remuneration structuring was widely used by employers to provide employees with a higher than normal after tax income. This was mainly as a result of SARS accepting the so-called "salary sacrifice" principle for remuneration structuring and that it was in order for employees to structure their affairs so as to pay the minimum amount of tax.
Slowly but surely SARS has been removing the ability of employees, and likewise, employers to structure their remuneration packages in a manner that would reduce their tax burden when compared to the receipt of an unstructured salary. In fact, SARS has on numerous occasions made known the fact that they are going to limit the ability of employers to structure the remuneration of their employees.
The last significant remaining remuneration structuring method available to employees has been the utilisation of the so-called travel allowance, which benefit is now to be severely curtailed. Treasury’s rationale for removing the deemed mileage and cost method is somewhat dubious and does not seem to be based on any objective research. Reading between the lines, it seems that its main objection is that there is no fool-proof mechanism for SARS to validate the actual mileage travelled by employees claiming against their travel allowances.
Currently, 40% of the allowance is not subject to monthly PAYE. With the curtailment of the travel allowance one would assume that the PAYE concession would also be removed or reduced, thus impacting the monthly after-tax cash flows of salary earners.
The announcement is not doom and gloom for all employees receiving travel allowances as those employees who are incurring genuine business travel will be able to claim a deduction, provided that they maintain a detailed logbook and keep accurate records of the costs incurred in the running and maintaining of their motor vehicle. In terms of the Act, travel between an employee’s private residence and their place of work does not constitute business travel which will impact the mileage qualifying for business purposes. The abolition of the deemed mileage and cost method of claiming against a travel allowance could have a negative impact on those employees receiving travel allowances, either in the form of additional record keeping or reduction in take home pay.
Grant Thornton
Editorial comment: Although this legislation is at this stage only proposed, readers should prepare themselves to maintain the necessary records and logbook. An acceptable form of logbook is available from SARS offices or from their website.
