What is a subsistence allowance?
The subsistence allowance is not available to employees who are seconded to other work places of the employer, or employees who are ""normally"" required to stay away from their usual place of residence for extended periods of time. Any type of compensation received for these purposes is not regarded as a subsistence allowance and is therefore subject to employees tax.
The allowance is granted in respect of abnormal circumstances and can accordingly not form part of an employees remuneration package. The allowance is an amount paid in addition to the employees normal remuneration.
What are the benefits of receiving a subsistence allowance?
No employees tax is deducted from a subsistence allowance, regardless of whether or not the deemed amounts are exceeded.
It must be noted that any unexpended portion of the subsistence allowance will become taxable on assessment. Furthermore should you not utilise the allowance within one month of having received that allowance, it will become subject to PAYE in the following month. This is to stop the old practice of providing a standard monthly subsistence allowance with no travel.
If an employee has maintained proper records of his actual expenditure, there is no limit to the amount that can be deducted, however the allowance granted must be adequate to cover the expense claimed.
These deemed amounts do not apply to accommodation expenses as these will have be claimed using the actual amount incurred by the employee.
Where an employee does not maintain records of his actual expense, the employee will be deemed to have incurred the following daily expenses:
Local travel
• Incidental costs only - R85 per day; or
• Meals and incidental costs - R276 per day
Overseas travel
Allowances per country are listed on the SARS website (www.sars.gov.za)¹
The amounts available in respect of a few of the major countries are as follows:
• Australia - AUS$ 175
• Germany - €107
• United Kingdom - £107
• United States of America - US$157
The deemed expenditure will not apply where the absence is for a continuous period equal to or exceeding six weeks.
How does the subsistence allowance work in practice?
Examples:
Deemed Costs
An employee travelled within South Africa to conduct business-related activities in the furtherance of the employers trade. He received an amount of R6000 (being the maximum amount the employer was willing to incur) in advance from his employer for accommodation and an allowance of R500 per day for meals and incidental costs. The employee is away on business for 4 nights. The employee is able to prove that R7000 was incurred in respect of accommodation however is unable to prove any of the costs of meals and incidental costs.
The exclusion from taxable income in relation to the advance for accommodation is limited to R6000. The additional R1000 cannot be utilised to reduce the employees taxable income. The allowance of R2000 (i.e. R500 x 4) for the cost of the meals and incidental costs will be reduced by the deemed amounts and he will be taxed on the remaining R896 (i.e. (R500 - R276) x 4))
Actual Costs
An employee travelled within South Africa to conduct business-related activities in the furtherance of the employers trade. The employer paid for the accommodation and granted an allowance of R500 per day to the employee to enable him to purchase meals and to meet any related incidental costs. The employee is away on business for 4 nights. The employees retained the expense vouchers and is therefore able to prove that he spent R1500 on meals and incidental costs.
On assessment an amount of R1500 can be offset against the allowance as the vouchers are available as proof. The employee would not in addition be entitled to claim the deemed amounts and would therefore be taxed on the remaining R500 ((i.e. (R500 x 4) - R1500).
What are the implications of this allowance to the employer?
Upon capturing the IRP5 of the employee the employer must ensure the correct codes are utilised and that that the subsistence allowance is not simply included in the employees salary. The following codes should be utilised by the employer:
• Code 3704 (for local travel) and/or code 3715 (for foreign travel) in cases where the deemed amounts are exceeded; and/or
• Code 3705 (for local travel) and/or code 3716 (for foreign travel) in cases where the deemed amounts are not exceeded.
Multi-national companies whose employees travel the globe regularly will have to deal with the administrative burden of having to ensure that they comply with the rates granted to the various countries.
What is the final verdict?
It is considered beneficial to receive a subsistence allowance should you be obliged to spend at least one night away from your usual place of residence in the Republic in order to perform your duties of employment.
Should you decide to adopt the deeming method it is advisable to ensure that the allowance is not excessive as the amount in excess of the daily rate as stipulated by the Minister of Finance will be subject to normal tax.
If you anticipate that your meals & incidental costs will be higher than the deemed amounts, it is recommended that you maintain all of your expense vouchers as the actual costs incurred are only limited to the actual allowance granted by your employer.
Kubashni Govender - PKF Durban Chartered Accountants and Business Advisors http://www.pkf.co.za/
