After years of warnings and investigations, the final major perk, travel allowances have been driven onto a new highway. The Budget speech introduced significant changes to the deduction of travelling expenses against travel allowances. This article examines the changes affecting those employees using the deemed basis to determine their deduction of travelling expenses. The deemed basis has been a popular choice for many employees as it does not require accurate records…
The proposed changes are:
• Deemed Fixed Costs
The purchase price of a vehicle is capped at R 360 000 for the purpose of determining the deemed fixed costs. The deemed fixed costs have been reduced to reflect a residual value of 30% of the purchase price at the end of five years.
• Deemed Fuel and Maintenance Costs
The deemed fuel and maintenance costs are increased in line with prevailing average running costs.
• Deemed Private Kilometres
For the 2006 tax year, the deemed private kilometres are increased from 14000 to 16000 kilometres per annum. It is further increased to 18 000 kilometres for the 2007 tax year.
Employees are well advised to heed and plan for these changes as follows:
• Receiving a Travel Allowance
If you do not regularly travel for business purposes you should not receive a travel allowance. The changes in the deemed basis have increased the barriers for those employees that don’t undertake business travel. You face the risk of a close encounter with SARS that could leave you with a significant tax liability upon assessment.
(Star Workplace, March 2005)
• Cash flow
The full impact of these changes will only appear upon assessment when most employees are unprepared for the additional cash outflow. As stated in the Budget speech, “Taxpayers are advised to anticipate higher final payments on assessment in 2006”. SARS recommends that taxpayers consider “voluntary extra PAYE deductions” if they expect additional payments.
• Log Book
Employees regularly using their vehicle for business purposes may benefit by keeping a logbook. The tax deduction based upon actual business kilometres and costs may be higher than the deemed method.
• Purchasing a vehicle
Purchasing a vehicle beyond your means is going to cost you a lot more in future. Don’t expect the diminished tax benefits of your travel allowance to finance the vehicle. You should thoroughly do the financial calculations to understand the real cost of those new wheels.