ROB COOPER: Calculating your refund for business mileage just got easier
Welcome changes have been made to the travel reimbursement taxation rules from March.
The new rules are simpler and more logical than before, resulting in a travel compensation option that has significant advantages over travel allowances and company cars.
Generally, as an employee, if you incur your employer's business expense, your employer will reimburse you.
And usually a reimbursement is not regarded as remuneration (an amount paid for services rendered) and has no tax impact on you as an employee. Tax legislation, however, treats a portion of a travel reimbursement differently as it is regarded as remuneration.
Travel reimbursement is what you receive for kilometres travelled for business purposes. The amount must be calculated by multiplying the kilometres you, as an employee, have travelled, by a rate per kilometre set by your employer.
The portion of your travel reimbursement that is regarded as remuneration is used to calculate the pay-as-you-earn tax withheld from you as an employee, the 1% skills development levy payable by your employer, and the 1% Unemployment Insurance Fund contribution payable by you and your employer.
As it is difficult to determine the actual cost per kilometre without an accurate record of every expense, the minister of finance regularly prescribes a rate per kilometre - the "prescribed rate" - that employers can use for travel reimbursements.
The other option is to use the rate per kilometre in the "cost scale" table provided by SARS. SARS uses this cost rate per kilometre to assess your tax at the end of the tax year.
Employers can use any rate per kilometre that they wish, but whatever rate is used, there will be a tax consequence. Using the prescribed rate per kilometre has a number of benefits.
Until March 1 this year, tax legislation prescribed that 80% (or 20% if your business kilometres were more than 80% of the total kilometres travelled) of the travel reimbursement value must be regarded as remuneration. In other words, part of your travel reimbursement would always be treated as remuneration and that portion would be illogically based solely on the business kilometres you travelled.
The new tax rules are simpler and more logical than before
If your employer reimbursed you for more than 12000km in a tax year, it had to report the total of the travel reimbursement to SARS as income with the code 3702. You then had to provide your logbook details on your annual ITR12 tax return, otherwise the portion of the reimbursement (either 20% or 80%) that was not taxed when your salary was paid would be taxed on assessment.
In March, the tax rules changed to focus on the rate per kilometre at which you are reimbursed. The remuneration portion of the travel reimbursement is now that portion that exceeds the "prescribed" rate per kilometre fixed by the finance minister (R3.61 for the 2019 tax year), regardless of the number of kilometres travelled.
For example, if your employer reimburses you for 100km at R4.61/km, the remuneration portion is R100 (100km times R1) and your employer must report this to SARS against new tax certificate (IRP5) code 3722. The balance of the reimbursement (R361) must be reported as code 3702, and the total of the two codes (R461) will be assessed against your logbook details at the end of the tax year.
If the rate per kilometre used is R3.61 or less, there is no remuneration portion (therefore no PAYE, skills development levy or UIF costs), and the total amount reimbursed will be reported on your tax certificate against code 3703, which is not assessed for income tax. Thankfully, the 12000km rule for tax certificate reporting has fallen away.
If you use an expensive vehicle for work and want a commensurate rate per kilometre, you must keep in mind that if your employer pays a rate per kilometre above the prescribed rate, the total reimbursement will be assessed for income tax using SARS's "cost scale" rate per kilometre.
This rate is based on the original purchase price of the vehicle, and the kilometres travelled for the year (for work and in total). If the "cost scale" rate per kilometre is then less than the employer's rate, you will be assessed for income tax on the difference. Increasing the reimbursement rate will increase the employer's cost (reimbursement value, skills development levy and UIF), and your monthly take-home pay will reduce by the increased PAYE withheld on the higher remuneration value. However, you could be refunded on assessment.
Lastly, remember that there is a limit to the "cost scale" rate per kilometre as the table provides only for vehicles worth up to R595000. If your vehicle cost you more than that, the business expense you can claim will not increase.
If your employer uses the prescribed rate for all vehicles and all employees irrespective of their status, it simplifies its administration, is fair to all, transparent and sets a standard for the company.
Your employer will have to balance the increase in the company's costs against paying a fair value for the vehicle that an employee chooses to purchase and use for work purposes.
Cooper is the chairman of the Payroll Authors Group of South Africa and a member of the South African Institute of Tax Practitioners