Tax Treatment of Reimbursive Travel Payments

Tax Treatment of Reimbursive Travel Payments

Payroll / eTorQue, Tax

The tax treatment of reimbursive travel payments made to employees is often badly dealt with. The reason for this is usually a poor understanding of the law and the lack of a coherent travel policy.

It is important that the payroll administrator (or their manager) is able to identify the various categories of travel that employees may undertake. By that I mean how likely the employee is to be required to travel and the distances that they are to travel. This will establish whether the employee should be allocated a fixed travel allowance or be reimbursed for sundry business travel. It is suggested that a basic policy be drafted explaining the circumstances under which a travel allowance and reimbursements will be made.

In terms of current tax legislation in this regard the payments will be treated as follows:

  • An employee in receipt of a travel allowance will either have 80% or 20% of their travel allowance included in their monthly taxable income. This income will accrue to IRP 5 code 3701. It is imperative the employee maintain a logbook in the format acceptable to SARS.
  • An employee required to do only occasional business mileage can be reimbursed at the rate of R 3.55 per kilometre (2018 tax year) up to a maximum of 12 000 business kilometres per annum tax–free. The reimbursement must be reflected on the employee’s payslip and accrue to IRP 5 code 3703.
  • An employee who undertakes business travel for more than 12 000 kilometres per annum and/or who is reimbursed at more than R 3.55 per kilometre will still be paid tax-free on a monthly basis (even above these limits), with the payment accruing to IRP 5 code 3702. This reimbursement will however be taxed on assessment. It is imperative that the employee maintain a logbook in the format acceptable to SARS as a travel claim will need to be made when they submit their annual tax return.
  • An employee receiving a fixed travel allowance and then being reimbursed per kilometre for business travel will have the reimbursement paid to them tax-free on a monthly basis. This travel reimbursement will however be added to their travel allowance on assessment. It is important for the employee to ensure that they maintain a logbook in the format required by SARS. The fact that the travel reimbursement is paid tax-free could result in an amount being owing to SARS on assessment (if the travel deduction is not high enough). It is important for both employer and employee to take this into consideration when implementing such a policy.

The consequences of getting this process wrong can cost both the employer and employee in terms of taxes owing to SARS and result in a lot of unnecessary wasted time and effort to get things right. A clear policy outlining the company’s treatment of the travel options will greatly reduce the risk of tax non-compliance and allow the employee to plan their tax affairs accordingly.

If you have any questions in this regard or would like assistance with the drafting of such a policy please do not hesitate to give Dave Beattie a call on 031 582 7410 or email [email protected].