A travel allowance is an allowance or advancement given by your employer for business travel required by the employee for employment purpose of using your motor vehicle.
- The vehicle does not have to be in the name of the employee
- It can be your wife’s vehicle, cousin, any person, provided that person is not going to claim any travel expenses relating to the same vehicle in his/her tax return
- You cannot get a travel allowance for a vehicle that is owned by your employer
- Travelling from Home to your Office is not business travel!
- Once you receive a travel allowance, you must complete an annual tax return wherein you will need to justify your business travel incurred
- If you travelled for business purpose less that 8000 km’s for the year, then you have the option of using the 324c SARS rate to determine your business travel cost
Who qualifies for a travel allowance?
- Any employee who is expected to incur travel for work/business purposes
- Member of a CC or Director of a Private company is an employee for tax purpose
- A sole proprietor is not an employee thus do not qualify for a travel allowance
As a general rule:
- For the business owner it is better to own the vehicle and let the employee pay fringe benefits (the 2.5% of the cost of the car per month). This has the benefit that you have the car on your books as an asset and you can benefit from it one day when you sell it / trade it in
- For the employee it is better that he receives a travelling allowance (and keep a detailed log book , now a requirement) as he then owns the vehicle and can one day sell it when it is paid for and he ultimately pays less tax (overall when he sends in his tax return).
Professional Accountants will require the following details in order to do actual calculations
- Cost of the Car
- Whether you will finance the car or whether you will pay cash?
- How much mileage will be travelled per year and how much will be business / private?
- How much does the person earn who will receive the travelling allowance / car before and after you give him the car / travelling allowance
Examples of employment constituting a travel allowance:
- A Site foreman that uses his own vehicle (or vehicle not supplied by employer) will receive a travel allowance as he has to visit different sites throughout the day
- A Director of a Private company who uses his own vehicle to attend various functions and promote the company
- A member of a CC who uses his own vehicle to conduct client visits
If you need advice on implementing a travel allowance for your staff, contact PATC today!