Understanding travel allowance and capital gains tax
Tax experts answer your questions
What’s best: a travel allowance or mileage reimbursed?
Q: I have the choice to structure my own cost-to-company package and selecting the level of my travel allowance from 0% of my salary upwards. I drive a low-value older vehicle.
Would it make more sense to be paid for my mileage than to claim against a travel allowance? Confused, Plumstead, Cape Town.
A: Rob Cooper, tax expert at Sage, answers.
Your employer may only legally grant you a travel allowance if you travel for business purposes in a privately-owned motor vehicle and the employer must estimate the value of the allowance, not you.
The value of the travel allowance must closely approximate the actual business travel expense and should not be a chosen percentage of your salary.
Employers should use the SA Revenue Service (Sars) cost scale table to calculate an estimated cost rate per kilometre that is acceptable to Sars. This cost rate per kilometre is multiplied by the estimated business travel per month to get the monthly travel allowance amount.
Using the Sars cost scale table means that a rate per kilometre is determined that is commensurate with the value of the vehicle.
The employer must include either 80% (low business travel) or 20% (high business travel) into remuneration on which PAYE is calculated. The employee must keep a logbook of business travel, submit it to Sars at the end of the tax year, and Sars does the final income tax calculation.
The value of the travel allowance must be in line with the actual business travel expense. This is based on the value of the car and the number of business kilometers. It bears no relation to your salary.
A travel allowance should not be structured into a package. Your package represents your remuneration for providing your services to your employer. The travel allowance compensates you for paying for a business cost — it is the company’s expense and must not come out of your remuneration.
In other words, the travel allowance must be paid on top of the package and should not be structured into the package.
Travel reimbursement is much better understood than a travel allowance and if you use the Sars prescribed rate of R3.61 per kilometre, then there is no tax in the payroll or on assessment.
A travel reimbursement should also not be part of your package. It is your company’s expense, so why should you pay for it by having the cash component of your package (your remuneration) reduced by the value of the travel reimbursement?
Splitting the capital gain on joint property holding
Q: About 15 years ago, my three siblings and I jointly bought a property for our indigent parents to live in. We now need to sell the flat to relocate our parents to a retirement village. If the base cost was R111,250 and we get out R600,000, what would the capital gains tax be, and how is it calculated? Anonymous, via email.
A: Tax expert Piet Nel of the tax faculty & technical department at the SA Institute of Tax Professionals answers.
Assuming the property was registered in your names jointly in the Deeds Office, it would mean that, on the disposal of the property, the amount received by — or accrued to — the siblings in accordance with any agreement between them as to the ratio in which the profits or losses are to be shared, will be deemed to have been received by — or to have accrued to — each person individually.
The base cost (the R111,250), or expenditure incurred in acquiring the property, will be the amounts incurred by everyone.
While the parents ordinarily resided in the property as their main residence, and used mainly for domestic purposes, the primary residence exclusion of R2m is not available. It would only have been available if the joint owners resided in the property and used it for domestic purposes. And then only in the ratio that they owned the property.
Here's an example of the calculation, assuming the individual and her three siblings held the property equally. The proceeds on disposal for each one would then be R600,000 times 25% = R150,000. (If a selling commission was deducted from this you will add it to the R600,000).
The base cost would then be, if it was shared in the same ratio, R111,250 times 25% = R27,812. (Again, if a selling commission was deducted, you will add it to the R111,250).
The resulting capital gain would then be R150,000 less R27,812 = R122,188.
This is then added to the individual’s other taxable capital gains (or losses). If we assume there will be none for the year of assessment, we then reduce the R122,188 by the annual exclusion of R40,000. That gives us R82,188.
The taxable capital gain, that will be added to other taxable income of the individual, will then be R82,188 times 40% = R32,875.
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