More of your travel al­lowance will be taxed up­front

A pro­posal to in­crease the por­tion of a travel al­lowance that is taxed when the al­lowance is paid to you will go hand-in-hand with scrap­ping the de­duc­tion based on deemed mileage. From next year, you will have to use your ac­tual mileage recorded in a log-

Weekend Argus (Saturday Edition) - - PERSONAL FINANCE -

More of any travel al­lowance your em­ployer pays you to cover work-re­lated travel ex­penses will be taxed when you are paid the al­lowance from March 1, 2010.

The draft Tax Laws Amend­ment Bill pro­poses rais­ing, from 60 per­cent to 80 per­cent, the por­tion of the travel al­lowance that is sub­ject to Pay As You Earn tax. This is likely to af­fect your take­home pay, un­less you al­ready pay more than 60 per­cent tax up­front.

The Bill also pro­poses scrap­ping the deemed mileage that many tax­pay­ers with travel al­lowances claim as a de­duc­tion.

The pro­por­tion of the al­lowance that is taxed when you are paid will be in­creased be­cause the South African Rev­enue Ser­vice (SARS) ex­pects that your claims against your al­lowance will de­crease when you are forced to use your ac­tual mileage recorded in a log-book to claim.

Cur­rently, you can claim against a travel al­lowance by cal­cu­lat­ing your work-re­lated travel costs us­ing ei­ther your ac­tual mileage or the deemed mileage. If you have not been keep­ing a record of your ac­tual mileage for each busi­ness trip, you prob­a­bly have been us­ing the deemed mileage and claim­ing for mileage that ex­ceeds 18 000 km and up to 32 000 km.

The first 18 000 km you travel is deemed to be for pri­vate travel. The to­tal mileage you may claim for busi­ness travel us­ing the deemed mileage method is thus lim­ited to 14 000 km a year.

In the ex­plana­tory mem­o­ran­dum to the Bill, the Na­tional Trea­sury and SARS ar­gue that the high­est tax de­duc­tions (in amounts al­lowed to tax­pay­ers) are for claims against travel al­lowances. And most of the tax­pay­ers who claim use the deemed mileage method.

The Na­tional Trea­sury and SARS also say that most of th­ese tax­pay­ers are higher-earn­ers and, by im­pli­ca­tion, not those with more af­ford­able ve­hi­cles.

The pro­posers of the Bill ar­gue that the tax ben­e­fit is re­gres­sive, be­cause it favours wealth­ier tax­pay­ers.

The Bill’s travel claim pro­vi­sions have at­tracted some crit­i­cism as be­ing “too rad­i­cal”.

But th­ese crit­i­cisms were dis­missed by Na­tional Trea­sury

of­fi­cials, who said the phas­ing out of the deemed mileage claim on a travel al­lowance be­gan some time ago.

Trea­sury of­fi­cials also dis­missed ar­gu­ments that there is no need to in­crease the por­tion of the al­lowance that is sub­ject to up­front tax­a­tion from 60 per­cent to 80 per­cent.

They said that as claims for ac­tual mileage are likely to be lower than those for deemed mileage, nu­mer­ous tax­pay­ers would face ow­ing SARS tax if the up­front tax was not in­creased.

The changes to the travel al­lowance were aired at Par­lia­ment’s fi­nance com­mit­tee ear­lier this month and are ex­pected to be adopted fol­low­ing the for mal tabling of the Tax­a­tion Laws Amend­ment Bill in Par­lia­ment on Septem­ber 1.

If the Tax Laws Amend­ment Bill is en­acted as ex­pected, the deemed mileage method of claim­ing a de­duc­tion will be re­pealed from March 1 next year.

If you re­ceive a travel al­lowance and you travel for work pur­poses, you will have to keep a log-book that records your ac­tual mileage from March next year and use this to cal­cu­late your claim at the end of the tax year.

In ad­di­tion, you can ex­pect an in­crease in the tax de­ducted from your travel al­lowance when it is paid to you, be­cause only 20 per­cent of the al­lowance will be paid to you without tax be­ing de­ducted im­me­di­ately.

If your claim at the end of the tax year in Fe­bru­ary 2011 is more than 20 per­cent of the al­lowance, SARS will be obliged to credit you for the tax you have over­paid, and it will pos­si­bly re­fund you for the tax paid (if you do not owe SARS tax for any other rea­son).

If your ac­tual mileage and ex­penses re­sult in a claim that is less than 20 per­cent of the al­lowance, you will owe SARS for the bal­ance of the tax ow­ing on your travel al­lowance.

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