Louis Marais and Partners Chartered Accountants (S.A.)

In terms of s 8(1) of the Income Tax Act, the amount of a subsistence allowance to be taxed in your hands as an employee must be reduced by the costs that you incur on accommodation, meals and other incidental costs when you are obliged to spend at least one night away from your usual place of residence in the Republic by reason of your duties. But you must be away from home for at least one night for the subsistence allowance to be reduced by the qualifying expenses.

While you may deduct your actual expenses for this purpose, there is a very useful rule that states that you are deemed to have expended a certain amount on the qualifying costs, so that you are not obliged to keep a record of the expenses that you actually incur or produce vouchers for the expenses—at least as far as SARS is concerned. These deemed amounts are Gazetted by the Commissioner each year and under the current law they fix different deemed amounts for different countries.

The latest figures apply from 1 March 2010. For local travel, they are R85 a day when the allowance is given to defray incidental costs only and R276 per day when the allowance is given to cover meals as well as incidental costs. But these figures apply only if your employer does not pay the costs directly, for example, the costs of meals, say, when you use a corporate credit card to pay expenses.

These figures are for local travel in South Africa. A long list of daily costs has also been published for different foreign countries. There are over 180 countries listed and the figures range from US$157 a day for the USA and 120 pounds a day for the UK to US$187 a day for Mauritius. There is no distinction made whether the allowance covers incidentals alone or both incidentals and meals.

These rates apply for each day or part of a day that you are away from home. So if you are away for one night, this will amount to two part days and you would be allowed two days’ worth of deemed amounts.

But you do not have to rely on these deemed amounts. If you can show that you actually spent more than the deemed amounts, you can deduct your actual expenses. It is therefore a concession and not an obligation to use the deemed amounts.

The amount that you can deduct from the allowance is limited to the allowance that you receive. You cannot deduct any excess against your other income. So you can claim the deemed or actual expenses only if and to the extent that you get a subsistence allowance.

The subsistence allowances are not subject to the deduction of PAYE, as long as they are genuine allowances. You cannot simply recharacterise a part of your basic salary a subsistence allowance to avoid PAYE. It would in any event be a patent sham to do so, since it would mean that you are prepared to give up part of your salary to pay for your employer’s expenses, which is clearly absurd!

The PAYE rules contain a useful practical provision to cover the situation when you are given an advance to pay for your subsistence costs while you are away. For example, you may expect to be away for three days and your employer may give you an advance to cover the three days’ costs. Say you manage to finish the work in two days and therefore do not need the extra day’s advance or allowance. What the law says is that you have until the end of the next month to pay the surplus back or do the extra day’s travel and if you do not, the amount in question will become subject to PAYE in that month as additional remuneration. The point is that the deduction of PAYE is a monthly event and you have to sort things out each month. You cannot simply reconcile your subsistence allowances at the end of the tax year.