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Tax 32 > Unit 2 - Individuals - Allowances > Flashcards

Unit 2 - Individuals - Allowances Flashcards

1
Q

Allowances

A

EE/TP is taxed on the private portion of the allowance

  • The business portion is deducted from
    the total amount = private portion
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2
Q

Define an “allowance”.

A

An amount of money granted by ER to EE where the ER is certain that EE will incur business-related expenditure on behalf of ER, but where EE is not obligated to prove/account to ER for the expenditure.

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3
Q

Define an “advance”.

A

An amount that the EE has to prove the business expenditure & refund excess to ER.

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4
Q

Define a “reimbursement”.

A

An amount the EE has already incurred business expenditure, pd for it out of their own pocket, and then recovers expense from ER.

EE has to provide the ER with an expense voucher (prove) showing that he incurred the expense on behalf of ER.

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5
Q

S8(1)(b) - Travel allowance

What are the 2 types of travel allowances?

A

(i). Allowance/Advance iro transport
expenses
(ii). Allowance/Advance to be used by the
recipient for paying expenses iro a
motor vehicle used by the recipient for
business purposes (motor car travel
allowance)

The motor vehicle need not be owned by the recipient, it could be owned by the recipient’s spouse.

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6
Q

S8(1)(b) - Travel allowance

What is the amount to be included in the recipient’s taxable income iro transport expenses s8(1)(b)(i)?

A

Any portion of such allowance which is expended for private travel.

Private travel = incl. travel btw EE residence & their place of employment

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7
Q

S8(1)(b) - Travel allowance

What are examples of business travel?

A
  • EE leaves the office to attend a business
    conference.
  • EE stops to see a client en route to his
    place of employment, the travel btw EE
    home & client & travel after the meeting
    from the client to place of employment.
  • EE travels btw 2 cities to assist a client.
  • EE works from home permanently and
    has to travel to the client to assist the
    client.
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8
Q

s8(1)(b)(ii) - Motor car travel allowance

What is required:

A
  • Recipient uses his own car for business
    purposes
  • The person (not necessarily an EE)
    receives a travel allowance
  • That the recipient uses the vehicle, iro
    which allowance is received, for business
    purposes for all/part of the year.
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9
Q

S8(1)(b) - Travel allowance

What is the amount to be included in the recipient’s taxable income iro motor car travel allowance s8(1)(b)(ii)?

A

Amount deemed to be part of the recipient’s taxable income:
- so much of
- any allowance/advance
- pd to director, holder of office, manager,
EE/other person
- iro expenses of any traveling on
business
- as is not actually expended on business
travel.

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10
Q

S8(1)(b) - Travel allowance

What are the 2 ways in which the business travel expenditure can be determined?

A
  1. Using actual figures.
    If the recipient can produce actual business expenditure figures acceptable to the Commissioner. Detailed records would have to be kept.
  2. Using actual business km’s traveled & a deemed cost per km.

In each case a log book would have to be kept & all business travel would have to be recorded.

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11
Q

S8(1)(b) - Travel allowance

How do you calculate the amount to be included in taxable income of recipient?

A
  • Travel allowance = Actual private km’s x
    deemed rate per km
  • Travel allowance = Actual private km’s x
    actual rate per km
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12
Q

S8(1)(b) - Travel allowance

How do you determine the rate per km ito deemed cost per km?

A

The sum of:
- Fixed cost per the table/total km
traveled during year x days used for
business purposes/365.
- fuel cost per the tax table, where the
recipient of the allowance has borne the
FULL cost of fuel used in the vehicle.
- Maintenance cost per the table, where
the recipient has borne the full
maintenace cost of the vehicle

These costs vary depending on the value of the vehicle.

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13
Q

S8(1)(b) - Travel allowance

What is the value of the vehicle to be used in determining the rate per km ito deemed cost per km?

A
  • Purchased motor vehicle in arm’s length
    transaction = Original cost price + VAT,
    excluding finance charges
  • Vehicle held under lease (ICA) /lease
    where ownership acquired by recipient
    on termination of the lease = Cash value
    + VAT
  • In any other case = MV @ time recipient first obtained the vehicle/right of use thereof + VAT which would have been payable @ time.
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14
Q

S8(1)(b) - Travel allowance

How do you determine the rate per km ito actual cost per km?

A

The sum of:
- Wear & tear
- Actual cost incurred for license
- Actual cost incurred for insurance
- Actual cost incurred for fuel
- Actual cost incurred for maintenance

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15
Q

S8(1)(b) - Travel allowance

What are the limitations where actual costs are being determined?

A
  • YoA commencing on/after 1/3/2023
    Value of the vehicle is limited to R800,000
  • YoA commencing before 1/3/202
    Value of the vehicle is limited to R665,000
  • The wear & tear is limited to the value of
    the vehicle and is determined over a
    period of 7 years
  • Finance charges/instalments are limited
    to the value of the vehicle.
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16
Q

S8(1)(b) - Travel allowance

Reimbursement Travel allowance

Not important**

A

The travel allowance is not incl. in taxable income (tax-free) - Where ER pays EE an allowance based on actual business km’s traveled regardless of distance, & such allowance does not exceed 464c per km.

17
Q

S8(1)(b) - Travel allowance

Reimbursement Travel allowance

When does it not apply?

A
  • To the extent that the allowance is more
    than 464c per km, OR
  • If any other travel allowance is pd to EE
    by ER. i.e where a travel allowance is pd
    in addition to reimbursement allowance,
    both amounts are combined on
    assessment & treated as a single travel
    allowance.
18
Q

S8(1)(b)(iv) - Vehicle leased to ER by EE

A

Any rental & expenditure pd by ER is deemed to be an allowance pd to EE - where any motor vehicle is owned/leased by EE/spouse/child & has been let to the ER/AI.

19
Q

S8(1)(b)(iv) - Vehicle leased to ER by EE

Why are the deductions of any expenditure incurred by the EE prohibited?

A

For the purpose of the Act, the rental is deemed not to have been received by/accrued to EE :. prohibiting the EE from deducting any expenditure incurred.

20
Q

S8(1)(b)(iv) - Vehicle leased to ER by EE

Calculation?

A
  • Rental income - not taxable
  • Lease rental payable - not deductible
  • Car allowance = What ER pays x months
    of use
  • Business expenditure = business km
    traveled x deemed cost (based on the
    value of vehicle + any other expenditure
    not mentioned such as maintenance)
21
Q

EE tax on travel allowance?

A

EE tax is based on 80% of travel allowance

Proviso: EE tax may be based on 20% of the travel allowance if ER is satisfied that at least 80% of motor vehicle use during YoA will be for business purposes.

22
Q

EE tax on travel allowance?

What is the tax that will be withheld if the ER reimburses the actual business travel of EE?

A

Reimbursement @ rate of 464c per km
= No EE tax needs to be withheld

Calc:
Step 1: Km actually traveled x rate per km pd by ER
Step 2: Km actually traveled x 464c
Step 3: Step 1 - Step 2

Step 3 amount will form part of Remuneration for normal tax & will be subject to EE tax.

23
Q

s8(1)(a)(i)(bb) - Subsistence allowances

A

All allowances/advances to be incl in taxable income, EXCL any amounts actually expended by the recipient on any:
- accommodation
- meals & other incidental costs (relating
to accom)
- while the recipient is obligated
- by reason of his duties
- to spend => 1 NIGHT away from his usual
place of residence in R.

24
Q

s8(1)(a)(i)(bb) - Subsistence allowances

What is included as incidental costs?

A
  • Beverages
  • Private telephone calls
  • Gratuities (tips)
  • Room service

If bed & breakfast is inclusive for a single charge = accommodation charge & not incidental costs.

25
Q

s8(1)(a)(i)(bb) - Subsistence allowances

When are subsistence allowances TAX-FREE?

A

If the allowance does not exceed the following limits (deemed costs):

  • Incidental costs only = R161(R152;R139)
    p.d.
  • Meal & incidental cost = Ltd to
    R522(R493;R452) p.d.
  • Meals & incidental cost outside R = rates
    in tables apply.
26
Q

s8(1)(a)(i)(bb) - Subsistence allowances

When are subsistence allowances not TAX-FREE?

A

If the allowance exceeds the following limits (deemed costs):

  • Incidental costs only = R161(R152;R139)
    p.d.
  • Meal & incidental cost = Ltd to
    R522(R493;R452) p.d.
  • Meals & incidental cost outside R = rates
    in tables apply.

Then the amount is included in recipients GI and subject to EE tax.

27
Q

s8(1)(a)(i)(bb) - Subsistence allowances

What is the cost the recipient spent on subsistence that is deductible from allowance/advance given by ER?

A

THE SAME AS TRAVEL ALLOWANCE: YOU CAN EITHER DEDUCT THE ACTUAL/ DEEMED COST FROM ALLOWANCE, Whichever method is more favorable for the recipient.

  • Actual cost: Amount the recipient can
    prove that they spent on accommodation,
    meals & incidental costs (Ltd to
    allowance/advance).

OR

  • Deemed cost: A deemed amount for
    meals & incidental costs/incidental cost
    only (ltd to allowance/advance)
    Note that the allowance amount does not
    apply to accommodation, even tho the
    allowance has to relate to
    accommodation.

Local allowance for YoA commencing on/after 1/3/2023 (Deemed cost):
- Incidental costs only = R161(R152;R139)
p.d.
- Meal & incidental cost = Ltd to
R522(R493;R452) p.d.

Accom. to which the allowance for meals & incidental cost relates is outside R = rates in tables apply.

28
Q

s8(1)(a)(i)(bb) - Subsistence allowances

What is included in the recipient’s taxable income ito accommodation?

A
  • If allowance is given to cover accom.
    expense per night
    Taxable portion = Total allowance - What
    the recipient can prove what was spent
    on accom.
  • If an advance was given to be spent on
    accom.
    Taxable portion = Total advance amount -
    what recipient can prove what was spent
    on accom. - any amount recovered by ER
    from EE (what EE returned to ER)
29
Q

s8(1)(a)(i)(bb) - Subsistence allowances

Loss on allowances?

A

The allowance cannot create a loss.

Costs that are claimed are limited to advance/allowance.

30
Q

s8(1)(a)(ii) - Other allowances/advances

A

Basic principle = All allowances are incl. in taxable income unless exempt under s10(1).

  • Reimbursement of actual business expenditure is not incl in taxable income.
31
Q

s8(1)(a)(ii)(A) - Other allowances/advances

What are the requirements of the amount where the amount is a reimbursement of/advance for expenditure?

A

The amount must be:

  • Incurred/to be incurred by the recipient
  • On instruction of principal(ER) & in
    furtherance of trade of the principal, &
  • Recipient must produce proof that
    expenditure was wholly incurred on
    instruction of principal(ER) & in
    furtherance of trade of the principal, &
  • Recipient must account to the principal
    for the expenditure
  • If an asset is bought, ownership must
    vest to the ER.
32
Q

s8(1)(a)(ii)(B) - Other allowances/advances

When do the tax-free limitations apply under this section?

A
  • Where an EE has to spend part of a day
    away from his place of employment, &
  • Expenditure incurred need not be on the
    instruction of ER but must be in
    furtherance of trade of the ER, &
  • Recipient must produce proof that
    expenditure was in
    furtherance of trade of the principal, &
  • Recipient must account to the principal
    for the expenditure
  • If an asset is bought, ownership must
    vest to the ER.
33
Q

Entertainment allowance

A

Included in the taxable income of the recipient.

Decision tree:
- Was expenditure incurred ito
employment?
- No: Possible deduction ito s11(a)
- Yes: Is EE an AGENT/REPRESENTATIVE
whose remuneration is mainly
commission-based?
- Yes: possible deduction ito s11(a)
- No: No deduction of expenditure

S11(a) = In the production of income, not of capital nature, for trade purposes.

Tax 32 (22 decks)

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