We would like to alert all South African vehicle owners to write down the mileage travelled up to the 28th of February! Tax consultants have urged their clients not to neglect this important detail required by the South African Revenue Services. It is also important to note that if you buy a new car during the next tax year, you would need to write down the mileage of the old vehicle on the date you are selling the vehicle!
From today you will be required to keep a logbook if you want to claim for travel allowances. We would like to share this important information:
Termination of the deemed kilometre method
The use of the deemed kilometre method has over time become more restrictive with the gradual increase in the number of deemed private kilometres and a resultant decrease in the maximum deemed business kilometres. Currently, the first 18 000 kilometres are deemed to be private. As the maximum deemed kilometres are 32 000 per tax year, the maximum deemed business kilometres are 14 000.
SARS has made it clear that a travel allowance should only be granted in circumstances where an employer is certain that an employee will incur business-related expenses and that the quantum of the allowance should be based on the anticipated business expenditure.
Nevertheless, the deemed kilometre method has according to Sars inadvertently provided an opportunity for employees who are not necessarily required to undertake business travel or who are only required to undertake limited business travel, to structure a travel allowance.
Now, with the imminent termination of the deemed kilometre method, employees who were previously taking advantage of this method will only be able to claim a tax deduction against their travel allowance to the extent that actual business kilometres are travelled. In this regard it should be noted that travel between home and work is regarded as private travel and not business travel.
Companies who have historically permitted employees who undertake little or no business travel to structure a travel allowance as part of their remuneration packages will now be forced to reconsider their travel allowance policy and approach.
In addition, those employees who are required to travel regularly on business (for example, sales agents), and relied on the deemed kilometre method to calculate their tax deduction, will be harshly affected by the changes. This is because they will now be required to keep a detailed logbook in order to justify their tax deduction claimed at the end of the tax year. Information required to be recorded in a logbook is the date of travel, destination, purpose of travel and number of kilometres.
Increase in portion of travel allowance subject to employees’ tax
From 1 March 2010, 80% of a travel allowance will be subject to employees‟ tax, as opposed to the current 60%.
The changes mean that those employees with genuine business travel will need to bear the cost of the tax until such time as they receive their refund from SARS (which would be some time after year end, depending on how quickly they are assessed). For employees who undertake a great deal of business travel and whose travel allowances are a genuine part of their packages and impact on the total cost to the company, the changes could also have a significant impact and could increase the cost of employment to their employers.
Employees will also need to carefully monitor their actual travel, and will no longer have the fall-back position of the deemed kilometres if they fail to maintain a proper logbook.
May all our visitors drive safely and purchase affordable car insurance premiums with the money saved through correct tax planning!!