End of the road for claiming deemed business mileage
February 14, 2009

By Laura du Preez

The days of claiming deemed mileages against a travel allowance paid by your employer are numbered. If you want to claim against a travel allowance, you will have to keep a logbook that details your business trips.

The South African Revenue Service (SARS) announced in the Budget this week that from March 1 next year it plans to scrap the deemed kilometres you have been allowed to use to claim against a travel allowance. This means the tax year that starts at the beginning of next month is the last one in which the deemed kilometres will apply.

Employees who are paid travel allowances will still be able to claim the deemed costs that SARS calculates each year, which means you won't have to keep a record of all your vehicle-related expenses.

This year, as in previous tax years, you can claim as business travel any distance that exceeds the first 18 000 kilometres clocked up on your vehicle, up to 14 000 kilometres.

As of next year you will have to record and claim for the actual mileage you travel.

Keeping a record
When, in the 2005/6 tax year, SARS started to increase the mileage you had to deem to be private mileage before you could claim deemed business mileage, many people who received travel allowances but who had lower mileages were forced to keep records of their business travel and claim the actual mileage.

But there are still some of the 500 000 taxpayers who receive travel allowances and who make use of the deemed business mileage because their annual mileage is high.

SARS believes some of them may be benefiting from the deemed mileage system, which can overstate their business travel.

Johann Vermeulen, a senior manager for tax at Ernst & Young, says many taxpayers will find keeping logbooks too much of a burden. For these taxpayers, it will mean that from the 2010/11 tax year their travel allowances will become fully taxable, he says.

In terms of the current Pay As You Earn system, your employer must tax 60 percent of your travel allowance. If you claim more than 40 percent of the allowance as a deduction, and assuming you have no other deductions or untaxed income, you will have paid too much tax and SARS will owe you a refund.

But if you pay tax on only 60 percent of the allowance and don't claim against the allowance because you haven't kept a logbook, you will most probably have to pay in tax at the end of the tax year.

Take-home pay affected
Vermeulen says if you are in this situation, Finance Minister Trevor Manuel is giving you advance notice to adjust your travel allowance to avoid paying in amounts when you are assessed. This could affect your take-home pay, and you should start planning for this now.

Other taxpayers will decide to keep logbooks only to find at the end of the 2010/11 tax year that their actual business kilometres do not justify the level of their travel allowances, Vermeulen says. These taxpayers will also find themselves in the position of having to pay in amounts on assessment, he says.

Both employers and employees will have to use the one-year grace period to re-evaluate the current level of travel allowances paid and to base allowances on more realistic business kilometres travelled, Vermeulen says.

Employers can pay you a tax-free reimbursive allowance at a rate set by SARS for up to 8 000 kilometres travelled each year, he says.

Changes to your travel allowance could affect your cashflow and should be assessed carefully.

If your travel allowance is regarded as non-retirement-funding income and your employer converts your travel allowance to retirement-funding salary, the contributions paid by it and you to your retirement fund could increase. Although this may be a good thing, it could reduce your take-home pay.