How do I declare an allowance for work trips away from home?
If you are required to travel for work, you may be wondering about the tax implications. Here's how it works.
If you are required to travel for work, you may be wondering about the tax implications – especially if you get an allowance from your employer. Here’s how it works.
When, as an employee, you are required to travel for work, your employer will generally provide you with an allowance that you may use to cover costs incurred while travelling. The correct name for this allowance is a subsistence allowance.
The nuts and bolts
This allowance, for meals and incidental costs, may be tax-free in your hands if as an employee you are required to spend at least one night away from your usual place of residence, and the amount received falls under a threshold amount.
There are slightly different implications for travel within South Africa and travel outside of South Africa.
Travel within South Africa
The South African Revenue Service (SARS) has specified daily rates that should be used to ensure that the allowance is tax-free in the hands of the employee.
For the 2019 tax year, the amounts which can be tax-free are as follows:
- a) Meals and incidental costs – R416/day
- b) Incidental costs only – R128/day
If you receive an allowance exceeding the above rates, your employer will reflect the amounts as taxable on your IRP5, and you may be taxed on the amount that exceeds the deemed rates when you submit your tax return.
If the amounts are listed as taxable, you will still need to correctly fill in your tax return with the applicable deemed rates deductions to ensure that you are not taxed on the full subsistence allowance. This will be done upon submission of your annual tax return.
It is also possible that, instead of using the deemed rates, you use actual costs incurred. If you choose this option you will need to provide receipts to SARS to prove your expenses. You may choose this option if your actual expenses (that you can prove) exceed the deemed rates. This would then ensure that no tax is payable on an amount received above the deemed rate.
In other words, it is preferable that your employer does not pay you at a rate exceeding the above rates so that your subsistence allowance will be listed as non-taxable on your IRP5, and there won’t be any negative tax implications.
However, if it is necessary to receive amounts above the deemed rates, all invoices must be kept, ensuring that you do not suffer adverse tax consequences.
Travel outside of South Africa
If you travel outside of South Africa for work, the same principles as above apply: in other words, that a certain amount of a subsistence allowance may be tax-free, provided the employee is obliged to spend at least one night away for his or her usual place of residence.
SARS has a specific daily rate per country. For example, for the 2019 tax year, the United States is $155 or £102 for the United Kingdom. (You will need to ensure you check the correct rate for the country you visit.)
In other words, if an employee is obliged to visit the United States on business for ten days, he or she may receive a tax-free subsistence allowance of $1,550 for the trip. This would cover meals and incidental costs.
It’s important to note that accommodation has not been dealt with, as it is generally paid directly by the employer. If as an employee you are obliged to pay for accommodation out of your own pocket, the payments for this should also qualify as a tax-free allowance, if the correct procedures are followed.
SARS practice is to limit the tax-free subsistence allowance to six weeks.
A reimbursive allowance – where as an employee you are provided with money (or are reimbursed) by your employer for purchases made on instruction from your employer in furtherance of your employer’s business – are a different case and fall beyond the scope of this article. However, if as an employee you produce proof of the expenses to your employer, the amount will not be taxable.
It need not be difficult to declare your allowances correctly and avoid negative implications for yourself, your employer and SARS. In many cases, an understanding of the rules is all you need.
- Baines, a tax consultant at Mazars, is the author of How to Get a SARS Refund.