Tax as­pects of e-tolls un­her­alded part of talks

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW -

Em­ploy­ers and em­ploy­ees must ne­go­ti­ate a va­ri­ety of sce­nar­ios

THE levy­ing of tolls for the use of cer­tain high­ways in Gaut­eng, the so-called etolls, took ef­fect on 3 De­cem­ber 2013, but not much has been said about the tax con­se­quences of th­ese tolls. In­come tax con­se­quences from the pay­ment of e-tolls where an em­ployee is re­im­bursed for busi­ness trav­el­ling or is pro­vided with a ve­hi­cle owned by their em­ployer are cases in point, as is where an em­ployee re­ceives a trav­el­ling al­lowance to fi­nance the ex­pen­di­ture in­curred while trav­el­ling on the em­ployer’s busi­ness.

An em­ployer may de­cide not to pro­vide an al­lowance for trav­el­ling to their em­ploy­ees, nor a com­pany owned ve­hi­cle. They may in­stead want to re­im­burse staff for the ac­tual dis­tance trav­elled on the busi­ness of the em­ployer. Where an em­ployee trav­els on the em­ployer’s busi­ness and does not ex­ceed 8,000 kilo­me­tres dur­ing a year of as­sess­ment and the em­ployee does not re­ceive any other com­pen­sa­tion from the em­ployer in the form of a fur­ther al­lowance or re­im­burse­ment, the pre­scribed rate per kilo­me­tre, which may be paid with­out at­tract­ing in­come tax, is R3.24.

The pay­ment of the al­lowance is also not sub­ject to VAT as a fringe ben­e­fit in terms of sec­tion 18(3) of the VAT Act.

The rate per kilo­me­tre was set be­fore e-tolls be­came ef­fec­tive and fu­ture reg­u­la­tions gov­ern­ing the amount payable by an em­ployer to an em­ployee for trav­el­ling on the em­ployer’s busi­ness should be clar­i­fied to pro­vide that the em­ployer may re­im­burse the em­ployee in re­spect of the cost of e-tolls.

Where the em­ployer owns or leases a mo­tor ve­hi­cle and makes that avail­able to an em­ployee the em­ployee will be sub­ject to fringe ben­e­fits tax on its value and us­age.

In prin­ci­ple, the em­ployee is sub­ject to fringe ben­e­fits tax at a rate of 3.5% of the de­ter­mined value of the mo­tor ve­hi­cle for each month for which the em­ployee is pro­vided with the use of the ve­hi­cle by their em­ployer. The de­ter­mined value of the ve­hi­cle for fringe ben­e­fits tax pur­poses is nor­mally the cash cost thereof, in­clud­ing VAT. In the event that the mo­tor ve­hi­cle, at the time of ac­qui­si­tion, is the sub­ject of a main­te­nance plan, the rate of fringe ben­e­fits is re­duced to 3.25% of the de­ter­mined value of the mo­tor ve­hi­cle on a monthly ba­sis.

In the case of an em­ployer-owned ve­hi­cle, the em­ployer will be li­able to pay the e-tolls and will be en­ti­tled to deduct the cost of e-tolls as an ex­pense in­curred in the pro­duc­tion of in­come in that it re­lates di­rectly to the pro­vi­sion of the mo­tor ve­hi­cle by an em­ployer to an em­ployee for pur­poses of its busi­ness.

The em­ployer will, so long as the trav­el­ling was for the pur­pose of mak­ing tax­able sup­plies and they re­ceive a valid tax in­voice which com­plies with the pro­vi­sions of sec­tion 20 of the Value-added Tax Act, Act No 89 of 1991, be en­ti­tled to re­cover the VAT paid on the e-tolls as an in­put credit when sub­mit­ting its VAT re­turns to SARS.

Where the em­ployee re­tains ac­cu­rate records of busi­ness dis­tance trav­elled it will be pos­si­ble to re­duce the tax­a­bil­ity of the fringe ben­e­fit by tak­ing ac­count of the ra­tio of busi­ness kilo­me­tres to to­tal kilo­me­tres trav­elled by the em­ployee. Also, where the em­ployee pays for cer­tain ex­penses re­lat­ing to the mo­tor ve­hi­cle, the value of the tax­able fringe ben­e­fit may be re­duced by tak­ing ac­count of the busi­ness kilo­me­tres trav­elled as a pro­por­tion of the to­tal kilo­me­tres trav­elled dur­ing the tax year.

The em­ployer is re­quired to deduct PAYE on 80% of the value of the fringe ben­e­fit aris­ing from the use of the em­ployer-owned ve­hi­cle un­less the em­ployer is sat­is­fied that at least 80% of the em­ployee’s travel is re­lated to the busi­ness of the em­ployer. In th­ese cases the PAYE de­duc­tion is based on 20% of the value of fringe ben­e­fit in ques­tion.

For em­ployee-owned ve­hi­cles the em­ployee will re­ceive an al­lowance as part and par­cel of their re­mu­ner­a­tion pack­age with the re­sult that the trav­el­ling al­lowance re­ceived will be sub­ject to PAYE such that 80% of the al­lowance paid per month will at­tract PAYE, fall­ing to 20% where the em­ployer knows that 80% or more of the trav­el­ling un­der­taken by the em­ployee is for busi­ness pur­poses.

It is thus es­sen­tial for the em­ployee to re­tain a log book.

When the em­ployee com­pletes their an­nual tax re­turn they will be en­ti­tled to claim ex­pen­di­ture re­gard­ing the mo­tor ve­hi­cle against the al­lowance re­ceived by tak­ing ac­count of ac­tual busi­ness kilo­me­tres trav­elled dur­ing the tax year.

Where the em­ployee chooses to claim ex­pen­di­ture based on ac­tual ex­pen­di­ture in­curred they will be en­ti­tled to take ac­count of the cost of insurance, main­te­nance and other di­rect costs re­lat­ing to the op­er­a­tion of the mo­tor ve­hi­cle in­clud­ing fuel, de­pre­ci­a­tion on the mo­tor ve­hi­cle and the cost of e-tolls. The ta­ble of costs pre­scribed by the min­is­ter takes ac­count of the fixed cost at­trib­ut­able to the mo­tor ve­hi­cle which is an at­tempt to recog­nise the de­pre­ci­a­tion in the value of a mo­tor ve­hi­cle de­pend­ing on its cost, and fuel and main­te­nance costs. The ta­ble does not take ac­count of the cost of e-tolls and is un­likely to do so as e-tolls are only ap­pli­ca­ble on cer­tain high­ways in Gaut­eng and not in SA gen­er­ally.

The al­ter­na­tive for the em­ployee is to seek the re­im­burse­ment of the ac­tual e-toll costs in­curred from the em­ployer in re­spect of busi­ness trav­el­ling. This will be neu­tral for tax pur­poses from the em­ployee’s point of view. The em­ployer should be en­ti­tled to claim the re­im­burse­ment of e-toll costs as a de­duc­tion for in­come tax pur­poses un­der sec­tion 11(a) of the act.

Where an em­ployer re­im­burses an em­ployee who trav­elled for tax­able busi­ness pur­poses for e-toll costs that em­ployer will be en­ti­tled to re­cover the VAT re­lat­ing thereto even though the tax in­voice will be is­sued in the name of the em­ployee. This is based on the pro­vi­sions of sec­tions 16(2)(a) and 54 of the VAT Act which reg­u­lates the po­si­tion of in­put tax borne by an agent on be­half of their prin­ci­pal. Also, sec­tion 20(5) of the VAT Act does not re­quire that the name, ad­dress and VAT reg­is­tra­tion num­ber of the em­ployer be re­flected on a tax in­voice where the con­sid­er­a­tion for the sup­ply does not ex­ceed R5,000.

Those busi­nesses which own a large num­ber of ve­hi­cles, such as the car rental com­pa­nies will face an in­crease in their op­er­at­ing costs as a re­sult of e-tolls. Sim­i­larly, trans­port con­trac­tors will ex­pe­ri­ence an in­crease in their costs of mov­ing goods around the coun­try. The cost of e-tolls are di­rectly re­lated to the busi­ness con­ducted by such tax­pay­ers and will be de­ductible un­der sec­tion 11(a) of the act.

Where the af­fected busi­nesses are reg­is­tered for VAT, they will be en­ti­tled to re­cover the VAT in­curred on the e-tolls if the ve­hi­cles were used in the course of mak­ing tax­able sup­plies and so long as they are in pos­ses­sion of a valid tax in­voice which meets the re­quire­ments of sec­tion 20 of the VAT Act.

Where an em­ployee re­ceives a re­im­burse­ment of trav­el­ling at a rate not ex­ceed­ing the amount spec­i­fied by the min­is­ter of fi­nance it may be pos­si­ble to seek the re­im­burse­ment of e-toll costs with­out ad­verse tax con­se­quences. How­ever, it would be prefer­able if the rules reg­u­lat­ing such re­im­burse­ment are clar­i­fied.

In the case of a com­pany- or em­ployer-owned ve­hi­cle, the em­ployer will be li­able to pay the etolls and should be en­ti­tled to deduct that cost as a de­duc­tion for tax pur­poses. No ad­verse tax con­se­quences should arise in so far as the em­ployee is con­cerned who is sub­ject to fringe ben­e­fits tax on the us­age of the ve­hi­cle in any event.

In those cases where an em­ployee re­ceives a trav­el­ling al­lowance to fi­nance the cost of trav­el­ling on the em­ployer’s busi­ness a de­ci­sion will need to be made whether to claim the ac­tual ex­pen­di­ture in­curred re­gard­ing the mo­tor ve­hi­cle, in­clud­ing the cost of e-tolls or to rely on the ta­ble of pre­scribed costs as set out by the min­is­ter of fi­nance.

For those busi­nesses which own a fleet of ve­hi­cles for rent­ing out to clients or which own trucks to trans­port goods around the coun­try, the cost of e-tolls will be de­ductible for tax pur­poses in terms of sec­tion 11(a) and the VAT el­e­ment should be re­cov­er­able where the busi­ness is reg­is­tered for VAT pur­poses and the ve­hi­cle is used for tax­able busi­ness pur­poses.

Dr Beric Croome is a tax ex­ec­u­tive at ENSafrica.

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