Employee Allowances for the 2023 Tax Year

SARS updated their Employers Guide for Tax Allowances related to Subsistence Allowance, Travelling Allowances and Public Office Holder Allowances in line with the budget presented in February 2022.

SUBSISTENCE ALLOWANCE

Section 8(1)(a) read together with section 8(1)(c) of the Income Tax Act No. 58 of 1962 (the Income Tax Act).

A subsistence allowance is any allowance given to an employee or a holder of any office for expenses incurred or to be incurred in respect of personal subsistence and incidental costs (for example, drinks, lunch, parking).

Amounts deemed to be expended

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:

  1. Only incidental costs – R152
  2. Meals and Incidental costs – R493

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 R152.

Employer borne expenses

Where the accommodation to which the allowance or advance relates is outside the Republic, an amount equal to prescribed amount applicable to the relevant country 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 in accordance with the table for the country in which that accommodation is located. SARS has published an annexure with monetary detail; Subsistence Allowance – Foreign travel.

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.

Employees’ tax

Employees’ tax must not be deducted from the subsistence allowance, regardless of whether the deemed amounts and/or prescribed periods are exceeded.

Employees’ tax IRP5/IT3(a) details

The subsistence allowance must be indicated as follows:

• Code 3704 (for local travel) and/or code 3754 (for foreign travel) in cases where the deemed amounts are exceeded.
• Code 3714 (for local travel) and/or code 3764 (for foreign travel) in cases where the deemed amounts are not exceeded.

TRAVEL ALLOWANCE

Section 8(1)(b) of the of the Income Tax Act No. 58 of 1962 (the Income Tax Act).

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:

  1. A travel allowance given to an employee to finance transport (for example, a set rate or amount per pay period).
  2. 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.

Travel allowance

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 indicated 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 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.

Vehicle let to the employer

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 this 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 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.

Reimbursive travel allowance

A reimbursive travel allowance is where an allowance or advance is based on the actual distance travelled for business purposes (that is excluding private use).

Prescribed rate per kilometre

The rate per kilometre is fixed by the Minister of Finance and currently is R4.18 per kilometre (from 1 March 2022).

From 1 March 2018:

  1. 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.
  2. 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.

3 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.

Example:

Prescribed rate is R3.61 and employer pays R4.61 and the employee travelled 1, 000 km.

The steps undertaken are:

Code 3702 = R3 610 (R3.61 x 1000 km) (not subject to employees’ tax)
Code 3722 = R1 000 (R1.00 x 1000 km) (subject to employees’ tax).

Where the reimbursive allowance exceeds the prescribed rate per kilometre (irrespective of the kilometres travelled) and other compensation was paid (travel allowance), the full amount above the prescribed rate is subject to employees’ tax.

Example:

Prescribed rate is R3.61 and employer pays R4.61 and the employee travelled 1, 000 km. Travel allowance of R5 000 was paid.

The steps undertaken are:

Code 3702 = R3 610 (R3.61 x 1000 (not subject to employees’ tax))
Code 3722 = R1 000(R1.00 x 1000) (subject to employees’ tax))
Code 3701 = R5 000

NOTE: On assessment of the individual’s (employee’s) personal income tax return, SARS will combine the codes 3701 + 3702 + 3722 and the employee can be entitled to claim expenses incurred for business travel as a deduction on assessment against all values (R3610 + R1000 + R5 000 = R9 610).

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.

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