If you are receiving a travel allowance from your employer, you will be enjoying some measure of tax relief. SARS permits this tax relief in recognition of the fact that you are using your private vehicle for work purposes. The amount of tax relief you are benefitting from is dependent on:
As a reminder, business travel typically covers you traveling to your clients or suppliers but does not include your journey to your principal place of work and back.
Typically, SARS would recommend that your employer taxes 80% of this allowance during the year and then you would be able to claim what is due to you during tax assessment. This mechanism has been designed to prevent you from having to pay in on assessment if you overestimated your business travel. In some cases, you can ask payroll to tax only 20% of the monthly allowance, which allows you to enjoy the tax relief sooner.
There is a good chance that you would have provided the estimate of your travel for the tax year before the economy was locked down and you have not advised your new travel estimates. There is an equally good chance that you are not traveling nearly as much as you thought you were and yet you are still receiving that tax relief.
If this is the case, you may be in for a nasty surprise.
Based on the above, you could reduce your annual taxable income by just over R124,500 for the year and reduce your annual tax bill by as much as R51,000 for the year.
However, with Covid-19, things have now changed, and you may now only end up traveling 2,000km for work and 5,000km for personal travel. With this change, your taxable income should have only been reduced by a total amount of R42,538.00 for the year.
Without going into detailed calculations, the impact of the change can be severe. Some additional information is obtainable on the SARS website – https://www.sars.gov.za/tax-rates/employers/rates-per-kilometer/
It is likely that 80% of your travel allowance would have been taxed on the payroll during the year. Pre-Covid, this would mean that you would have received up to R40,640 back from SARS on assessment.
Now with your reduced travel, you may only receive R7,280.00 back from SARS, an R33,360 shortfall!!
Worse still, if your employer allowed only 20% of the amount being taxed on payroll monthly, then in fact you may be required to pay SARS an amount of just over R23,000!
These actual amounts will be different depending on your own circumstances, but it is critical that you are aware of the implications of any reduced business travel.
If you do receive a travel allowance, we would recommend that you check-in with payroll and HR to confirm how your allowance is being determined and taxed. They should review or reduce the amount depending on your circumstance. If you do not, you may be in for a surprise at the end of the year.
Alternatively, if you work in payroll/HR, it would be worthwhile to see how your entire employee population is being treated and consider a strategy for the remainder of the tax year. Or at the very least, furnish employees with advance warning.
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