Guide for Employers in respect of Allowances

Section 8(1)(c) of the Income Tax Act prescribes that the employee shall be deemed to have actually expended a certain amount (daily expenses in respect of meals and/or incidentals costs) where the employee is absent from his/her usual place of residence.

Where the accommodation to which the allowance or advance relates is in the Republic, an amount equal to the following is deemed to be expended for each day or part of a day in the period during which the employee is absent from his/her usual place of residence —

• Only incidental costs – R169
• Meals and Incidental costs – R548

Section 8(1)(a)(ii) of the Income Tax Act states that where the recipient is by reason of the duties of his or her office or employment obliged to spend a part of a day away from his or her usual place of work or employment and provides proof of such expenditure to the employer, a reimbursement or advance for such expenditure actually incurred by the recipient is excluded from taxable income if the recipient is allowed by his or her principal to incur expenditure on meals and other incidental costs for that part of a day and the amount of the expenditure does not exceed an amount of R169.

The rates are for guidance purposes only. The rates for each tax year will be published by notice in the Government Gazette

The amounts laid down in respect of travelling abroad will only apply to employees who are ordinarily resident in the Republic in respect of continuous periods spent outside the Republic.

The amounts that shall be deemed to be expended do not apply to the extent that the employer has borne the expenses (otherwise than by way of payment or granting of an allowance or advance) in respect of which the allowance was paid for each day or part of a day.

A subsistence allowance is intended for abnormal circumstances and therefore an allowance of this nature cannot form part of the remuneration package of an employee. It is an amount paid by an employer to the employee IN ADDITION to the employee’s normal remuneration.

For more information in this regard, please refer to Interpretation Note No.14 on the SARS website, www.sars.gov.za under Interpretation Notes/Income Tax.

If a subsistence allowance or advance is paid to an employee on or after 1 February 2006, the allowance or advance is deemed to become payable to the employee in the following month in respect of services rendered where such an allowance or advance was paid to the employee during any month in respect of a night away from his/her usual place of residence and that employee has not by the last day of the following month either spent the night away or refunded that amount to the employer.

A travel allowance is any allowance paid or advance given to an employee in respect of travelling expenses for business purposes.

Any allowance or advance in respect of travelling expenses not to have been expended on business travelling to the extent that it has been spent on private travelling (this includes travelling between the employee’s place of residence and his/her place of employment or any other travelling done for his or her private or domestic purposes), shall be deemed not to have been actually expended on travelling for business.

The following two situations are envisaged, namely —

• A travel allowance given to an employee to finance transport (for example, a set rate or amount per pay period).
• A reimbursement given to an employee based on actual business travel.

The definition of variable remuneration was extended to include any amount paid or granted in reimbursement of any expenditure. Therefore, any allowance or advance paid as variable remuneration in terms of section 7B must be included in the tax year that the allowance or advance is paid to the employee and NOT when it was incurred.

The employees’ tax deducted in respect of the travel allowance must be reflected as Pay-As-You-Earn (PAYE).

The total travel allowance (100%) must be reflected on the IRP5 certificate under code 3701.

80% of the travel allowance paid to an employee is subject to the deduction of employees’ tax. Where the employer is satisfied that at least 80% of the use of the motor vehicle for a year of assessment will be for business purposes, then only 20% of the allowance is subject to the deduction of employees’ tax effective from 1 March 2011. Note that this determination must be done on a monthly basis. If an employer withheld employees’ tax on only 20% of an employee’s travel allowance and circumstances change such that the employer realizes that the employee will no longer use the vehicle at least 80% for business purposes during the year of assessment, from the month in which the circumstances change, employees’ tax must be withheld on the 80% of employee’s travel allowance.

Where a travel allowance is paid in addition to a reimbursive allowance (see discussion below) or vice versa, both the amounts will be combined on assessment by SARS. These combined allowances will be treated as a taxable travel allowance. The employee should claim a travel deduction on his/her personal income tax return.

Where an employee, his/her spouse or child owns or leases a motor vehicle (whether directly or indirectly by virtue of an interest in a company, trust or otherwise) and such vehicle is let to the employer or associated institution in relation to the employer, the sum of the rental paid by the employer together with any expenditure in respect of the vehicle which was borne by the employer, is deemed to be a travel allowance. This deemed travel allowance must be declared as such and the employee will be entitled to claim expenses incurred for business travel as a deduction on assessment.

Note: The rental received by the employee must not be declared as rental income but as a travel allowance. Although the employee obtains the right of use of the vehicle from his/her employer, he/she is not subject to tax on the benefit arising from the private use of such motor vehicle.

The rate per kilometre is fixed by the Minister of Finance and currently is —

• R4.84 per kilometre (from 1 March 2024).

Pre 1 March 2018 (2018 and prior tax years) –

An allowance or advance which is based on the actual distance travelled for business purposes (reimbursive travel) is not subject to employees’ tax but the full amount must be reflected on the IRP5 certificate —

• Under code 3703 where the reimbursive allowance does not exceed 12 000 kilometres AND the prescribed rate per kilometre AND no other compensation is paid to the employee.
• Under code 3702 where the reimbursive allowance exceeds 12 000 kilometres OR the prescribed rate per kilometres OR any other compensation is paid to the employee.

The table hereunder displays the relevant source codes under which the amounts must be reflected on the IRP5/IT3(a) certificate for 2018 and prior the tax years.

From 1 March 2018 –

• Where the reimbursive allowance does not exceed the prescribed rate per kilometre AND no other compensation is paid to the employee, the amount is not subject to employees’ tax but the full amount must be reflected on the IRP5 certificate under code 3703
• Where the reimbursive allowance does not exceed the prescribed rate per kilometre however other compensation is paid to the employee (travel allowance code 3701), the amount is not subject to employees’ tax but the full amount must be reflected on the IRP5 certificate under code 3702.
• Where the reimbursive allowance exceeds the prescribed rate per kilometre (irrespective of the kilometres travelled), the full amount above the prescribed rate is subject to employees’ tax.

The table hereunder displays the relevant source codes under which the amounts must be reflected on the IRP5/IT3(a) certificate from 1 March 2018.

Any allowance granted to the holder of a public office to enable him/her to defray expenditure incurred by him/her in connection with his/her office, to have been expended by him/her to the extent that he/she has actually incurred expenses for the purposes of his/her office in respect of —

• Secretarial or duplicating services, stationery, postage or telephone calls;
• The hire and maintenance of office accommodation;
• Travelling;
• Hospitality extended at any official or civic function which the holder of the office is by reason of the nature of such office normally expected to arrange;
• Subsistence and incidental costs incurred.

Where it is expected from the following office holders:

• The President, Deputy President, a Minister, a Deputy Minister, a member of the National Assembly, a permanent delegate to the National Council of Provinces, a Premier, a member of an Executive Council or a member of a provincial legislature,
• Any member of a municipal council, a traditional leader, a member of provincial House of Traditional Leaders and a member of the Council of Traditional Leaders; and
• Any person occupying the office of president, chairman or chief executive officer of any non
  -profitmaking organisation which is organised on a national or regional basis to represents persons with common interests.

To defray any expenditure out of his/her salary, an amount equal to a portion of such salary is deemed to be an allowance to the holder of a public office. This is prescribed by the provisions in section 8(1) (f) and the amount is determined by the National Assembly or the President.

Where the employee has held a public office for less than 12 months, the portion of his/her salary which is deemed to be an allowance to a holder of a public office in terms of section 8(1)(f), must be apportioned to determine the amount relevant for the actual period for which the office was held. A part of a month shall be reckoned as a full month.

The full allowance (100%) must be reflected under code 3708; and

All the other income components must be reflected under the relevant codes (e.g. salary, overtime, bonus, etc.).

Holder of a public office not in standard employment: A holder of a public office receives an allowance of R4 000 per month to enable him to defray expenditure in respect of his office.

The portion of the allowance which is subject to the deduction of employees’ tax is 50% and must be taxed at a rate of 25% as the holder of the public office is not in standard employment.