Travel Allowances - All is not lost

The announcement by Finance Minister Trevor Manuel in his Budget last month that as from March 1 2010, taxpayers receiving travel allowances will no longer be able to base their claim on "deemed" kilometres, has resulted

Travel allowances: All is not lost

The announcement by Finance Minister Trevor Manuel in his Budget last month that as from March 1 2010, taxpayers receiving travel allowances will no longer be able to base their claim on "deemed" kilometres, has resulted in some commentators writing the obituary for travel allowances.  However, and to paraphrase Mark Twain, "rumours of [its] death are greatly exaggerated".

It was in fact as far back as the 2006 Budget that I speculated that the next move for travel allowances would be the doing-away with so-called "deemed" business and private travel, making the keeping of a logbook compulsory.  For receiving a travel allowance was never intended to put more money into taxpayers' pockets - it was intended to defray the costs incurred in undertaking legitimate business travel on behalf of one's employer.

Travel allowances became popular many years back when fringe benefits tax was introduced, which made it unattractive from a tax point of view to continue to receive a company car.  The swing to travel allowance probably also came about as more and more companies became tired of having their fleet used as delivery vehicles, 4x4s, and the like, and a travel allowance was seen as a way to limit their costs.

When travel allowances were first introduced, 40% thereof was subject to monthly PAYE, and only the first 10 000 kilometres were deemed to be private.  Anything over 10 000 km per annum was automatically deemed to be business, with no upper limit.  With generous provisions such as this, why bother to keep a logbook?  Especially if your job essentially entails being stuck behind a desk all day?

To combat the abuse of travel allowances, the deeming provisions were gradually tightened up to the current situation where the first 18 000 kilometres are deemed private travel, 18 001 - 32 000 are regarded as business, and any excess is once again private.  However, these measures did not go far enough, since there are still a number of taxpayers who receive a car allowance more as a "perk" than as a genuine business need.  As a result, they are claiming "business" travel which is not actually business-related, since they are not actually required to travel other than to get to work and back (which Sars has always considered to be private).

My argument in 2006, which the Finance Department appears to agree with in this year's Budget, is that if you are genuinely doing business travel, then log it and base your claim on such actual travel.  Those who are required to travel for work purposes often find that either their private travel is nowhere near 18 000 kilometres per year, or far exceeds the 14 000 currently allowed as "deemed" business, or even both.

In fact, those who do relatively little travel, but a high proportion thereof is business, will score the most from taking the trouble to keep a logbook.  Believe it or not, there are genuine cases of people travelling 16 000 kilometres per annum, of which 10 000 thereof are actually business!

This is in fact the last year in which taxpayers will be entitled to use deemed kilometres to claim against their travel allowance.  From March 1 2010, the only permissible option will be to keep a logbook.

But a logbook need not be as complicated as it sounds.  My long-held opinion is that since Sars is not going to allow you your private travel, you can save yourself a lot of trouble by recording only your business travel, plus of course the odometer readings as at the last day of February each year.  By using this method, if, for example, your total travel for the year is 22 500 kilometres, and your logbook can substantiate business travel of 12 750, it stands to reason that the remaining 9 750 represents private travel.

Ah, but some practitioners will state that Sars will reject "incomplete" logbooks where private travel is not recorded.  I would disagree with this statement.  Firstly, I have never come across a situation with any of my own clients where Sars has rejected a logbook where only business travel is recorded.  Furthermore, if Sars were to do so, I believe that they would have a hard time convincing a court of law that a logbook is "incomplete" or non-compliant simply because the total private travel does not indicate how many times the taxpayer took little Johnny to school or went to church on Sunday.

My recommendation?  Use this current tax year to get into the habit of logging your business trips.  If you slip up from time to time, you can of course fall back on the "deemed" kilometres.  However, come next year, Sars' standpoint will be: No logbook, no claim.

^{Source: Moneyweb}