End of the road
Puncture in travel allowance wheels?
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