End of the road

Punc­ture in travel al­lowance wheels?

Finweek English Edition - - Creating Wealth - MIKE TEUCHERT

NA­TIONAL TREA­SURY has rec­om­mended the deemed mileage and cost method of de­ter­min­ing the de­duc­tion against a travel al­lowance granted to em­ploy­ees is to be scrapped with ef­fect dur­ing the 2010/2011 tax year. In its hey­day, re­mu­ner­a­tion struc­tur­ing was widely used by em­ploy­ers to pro­vide em­ploy­ees with a higher than nor­mal af­ter-tax in­come. That was mainly as a re­sult of the SA Rev­enue Ser­vice 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 tax­a­tion as pos­si­ble.

Slowly but surely Rev­enue has been re­mov­ing the abil­ity for 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, Rev­enue have on nu­mer­ous oc­ca­sions tele­graphed the fact it’s 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 so­called 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 doesn’t seem to be based on any ob­jec­tive re­search. Read­ing be­tween the lines, it seems its main ob­jec­tion is there’s no fool­proof mech­a­nism for Rev­enue to val­i­date the ac­tual mileage trav­elled by em­ploy­ees claim­ing against their travel al­lowances.

Cur­rently, 40% of the al­lowance isn’t sub­ject to monthly PAYE. With the cur­tail­ment of the travel al­lowance we can as­sume the PAYE con­ces­sion will also be re­moved or re­duced, thus im­pact­ing salary earn­ers’ monthly af­ter-tax cash flows.

The an­nounce­ment isn’t doom and gloom for all em­ploy­ees re­ceiv­ing travel al­lowances, as those cur­rently in­cur­ring gen­uine busi­ness travel will be able to claim a de­duc­tion, pro­vided they main­tain a detailed log­book and keep ac­cu­rate records of the costs in­curred in run­ning and main­tain­ing their mo­tor ve­hi­cle. Rev­enue holds the view the travel be­tween an em­ployee’s pri­vate res­i­dence and his place of work doesn’t con­sti­tute busi­ness travel, which will af­fect the mileage qual­i­fy­ing for busi­ness pur­poses.

The abol­ish­ment 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 record­keep­ing or a re­duc­tion in take-home pay.

Tax Part­ner Grant Thorn­ton Cape Town

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