Travel allowances - is there a limit?

[Connie K]

Hi
My client travels approximately 4000 km a month (both business and private). An estimated 20% of his travel is for business. Based on this mileage and his vehicle, which is at the R480,000 threshold, we would like to structure a travel allowance of R20,000 which approximately R4000 is tax-free and R16,000 is taxable. The question is - is there a limit on the travel allowance? Especially since the bulk of it (R16,000) is taxable in any case?

[Andromeda]

Hi Connie
You will be better able to arrive at your own answer if you dispel some misunderstanding.

Actually there is no tax-free portion. It is recommended that 80% of the allowance is subjected to PAYE, while the 20% is subjected to income tax on assessment. On assessment, a deduction is allowed against the whole allowance and I assume that you are ok with how that works.

So in a nutshell, there is no limit as such, because the entire allowance is actually taxed, after allowing a deduction. By making the allowance very high, you would be doing the client no favours because his allowable deduction would then most likely be less than 20% of the allowance, meaning he would be a tax shortfall position.

[Connie K]

Hi there

Makes total sense - thanks for that!

Kind regards

[Christel]

If you are certain that he will travel more than 8000km in the tax year for business purposes, then you could tax only 20% of the travel, instead of the recommended 80%.

[capetowncheapflights]

you must check all taxes and fees also