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-
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.