Travel Allowance vs Car Allowance and there Benefits

In South Africa, both a travel allowance and a company car offer distinct financial benefits, especially for employees who need to travel for business purposes. These benefits, however, have tax implications that affect your taxable income and how you report expenses to the South African Revenue Service (SARS). Understanding how a travel allowance or company car impacts your taxes is essential for making informed financial decisions.

Travel Allowance: Tax Benefits and Deductions

A travel allowance is a fixed amount paid by your employer to cover the costs of business-related travel. While the travel allowance is included in your taxable income and taxed at your marginal rate, you can claim deductions for the actual costs incurred during business travel. This includes expenses like fuel, maintenance, and insurance, as well as depreciation of the vehicle, based on the percentage of business use.

SARS allows you to claim a deduction for business-related travel if you can prove the amount of travel used for business purposes. For example, if you use your vehicle 70% of the time for business, you can claim 70% of the expenses as a deduction.

Company Car: Tax Implications

If your employer provides you with a company car, the value of this benefit is considered a fringe benefit and is added to your taxable income. The taxable amount is calculated based on the vehicle’s value, including VAT, and the proportion of personal use. The higher the value of the company car and the more personal use, the higher the taxable benefit added to your income.

Example: Travel Allowance vs Company Car

If you receive a travel allowance of R6,000 per month and use your vehicle 80% for business, you can claim 80% of the vehicle-related expenses (fuel, insurance, maintenance, etc.) as a tax deduction. However, the full R6,000 travel allowance will be included in your taxable income.

In contrast, if your employer provides a company car worth R300,000, SARS will calculate the fringe benefit based on the vehicle’s value and your personal use. This amount will be added to your income and taxed accordingly.

How AAA Tax Practitioners Can Help

At AAA Tax Practitioners, we can help you understand how your travel allowance or company car affects your tax obligations. Our team can ensure you claim the maximum deductions possible and minimize your tax liability. Contact us today for expert assistance with travel allowance and company car tax planning.