Tax Allowances and How They Work

Business tax services includes a number of areas that business owners need to consider, including tax allowances for employees, and exactly how these allowances work. Employers are obligated to pay certain allowances for employees, particularly in the case of travel, vehicle and other taxable allowances according to the Income Tax Act No. 58 of 1962, Skills Development Levies Act No. 9 of 1999 and Unemployment Insurance Contributions Act No.4 of 2002 legislation – failure to cover these allowances is therefore grounds for employees to take businesses to the labour courts. Make sure that all of your employees are covered with business tax services assistance.

According to SARS (South African Revenue Services), tax allowances for employees are broken down as follows:

  • 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.
  • Compensation or an allowance paid to employees who reside far away from their normal place of employment or spend the night away from home is not regarded as a subsistence allowance and is subject to employees’ tax. This also applies in the case of a labour broker.
  • Section 8(1)(c) 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 outside South Africa, 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.

Additional reimbursable allowance for petrol can also be claimed, which is charged at a current fixed rate of R3.05 per kilometre, as set by the Minister of Finance. PAYE can be deducted by up to 80% if a fixed allowance is paid, but not if allowance has been reimbursed by the employer. PATC offers a number of business tax services that help you to correctly work out all tax allowances for your employees – contact us today for more information.