In either August or September 490 B.C., the Greeks had a difference of opinion with the Persians at a place called Marathon. Said difference of opinion led to an exchange of blows which eventually led to the defeat of the Persian army.
A soldier by the name of Pheidippides was duly ordered to run all the way to Athens to announce the positive disposition of the Greek army. On arriving in Athens he burst into the Assembly and immediately and with great aplomb exclaimed “we have won” after which he dropped to the floor in an expired state.
The distance covered by Pheidippides was approximately 40 kilometers, and so was born the marathon.
Then you get the ultra-marathon – the true test of human stupidity.
I wouldn’t even run the Comrades if I were Charlie Sheen and they had 4 Russian prostitutes and a bag of cocaine waiting exclusively for me at the finish line.
It would take you approximately 90 minutes to Uber the Comrades at a cost of R642 for UberX and R658 for UberXL – so why would any remotely sane person want to run the Comrades?
And motor vehicles also offers some neat tax “brakes” (pardon the pun).
Section 8(1) of the Income Tax Act requires a taxpayer to include in his or her income any allowance or advance received during a year of assessment. When the allowance is granted to a director, holder of office, manager or employee, it is only the amount that was not actually expended on business travel that should be included in the taxable income of the individual.
The application of this section therefore requires a determination of business travel expenditure. There are two ways in which this can be done, namely:
Using actual figures. The burden of proof would lie on the taxpayer to produce actual business expenditure figures which are acceptable to the Commissioner. A detailed record of all fuel, maintenance and auxiliary expenses would have to be kept. This could become quite cumbersome and opens the door for SARS to query and delay tax refunds. More often than not this method also does not provide the taxpayer with the best possible tax benefit available to him or her.
The alternative is to use actual business kilometers travelled and a deemed rate per kilometer. Under this method the total actual business kilometers travelled is multiplied with a deemed rate per kilometer as published in the Government Gazette. The deemed rate per kilometer is made up of three components, namely a fixed cost, a fuel and a maintenance cost. Together these three components aim to determine a rate that would be a fair reflection of the actual cost to run a vehicle and compensate the owner for a reduction in the value of their vehicle (similar to wear and tear and depreciation).
A table is published annually in March setting out the rand value of each component based on the value of the vehicle being used. The higher the purchase price of the vehicle, the higher the cost for each component, resulting in a different deemed rate for different taxpayers.
As an example, Mr. A received a travel allowance of R 100,000 for the February 2018 year of assessment. He travelled a total of 27,000 kilometers during the year of which 22,000 kilometers was for business purposes. His vehicle is valued at R 255,000. The deemed rate allowed by SARS will amount to R4,28 per kilometer. Mr. A would therefore include only R 5,840 (R 100,000.00 – 22,000 * 4.28) in his taxable income, the part of the allowance not used for business purposes.
As long as the cost to the taxpayer of running his or her vehicle is less than the calculated deemed rate, the taxpayer will be better off making use of the travel allowance. Furthermore, monthly Pay As You Earn is only calculated on 80% of the allowance, resulting in a lower monthly tax deduction and more cash in the taxpayer’s pocket. This 80% inclusion reduces to 20% if the employer is satisfied that at least 80% of the total kilometers travelled during the year will be for business purposes. A significant monthly tax saving.
Taxpayers may also make use of the tax-free reimbursive allowance whereby employers reimburse taxpayers monthly for actual business kilometers travelled. Taxpayers qualify for this allowance if their total business kilometers travelled is less than 12,000 kms per year and the amount reimbursed for each kilometer is R3.55 or less. In the case that the above two requirements are met, the taxpayer will not include any portion of the allowance in their taxable income and the reimbursement received will be tax free.
In order to determine what method and what quantum of allowance is most tax efficient, consultation is required with your tax practitioner. The value of the vehicle, the total distance travelled, the percentage of business travel and the composition of other salary benefits all need to be considered in the process of achieving tax efficiency.
Employers would also be well advised to consider offering such a ‘salary structure opportunity’ to their employees, as it could have a material effect on their monthly Pay As You Earn deduction and net take home pay. Increasing employee pay without any additional cost to the employer is a smart and easy way to boost employee morale and productivity.
There was a time when I despised motor vehicles more than I despised running – well at least one specific car. When I was still very young my dad decided to buy a 2nd hand brown (of all colors) Fiat 124 Special – a car so disgustingly ugly that the mere sight of it made you want to either run away or rip out your eyeballs.
But even brown and ugly Italian cars can be used for tax planning.
Article by C2M Director, Carel Steenkamp, CA (SA) RA
Read other articles by Carel Steenkamp:
- Employer-owned and other life policies
- I’ve had it with sex
- Death, taxes and other horrible creatures
- Tax benefits of contributing towards a Retirement Annuity
- Foreign Employment Income Exemption & Financial Emigration
- Bitcoin and Tax