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Tax

Allowances paid by Employers to Employees

Stay up to date with new tax rules

2021/05/31
Tax
How are allowances (other than for use of motor vehicle) treated for tax purposes?

All allowances (including entertainment allowances) of whatever nature are fully taxable to the extent that the amount is not a reimbursement of expenses that have been incurred on the instruction of the employer in furtherance of the business of the employer and with the appropriate proof provided to the employer. Actual expenditure reimbursements by employers remain tax exempt if the above rules apply and are followed. This includes entertainment expenditure reimbursements.

The personal tax free subsistence allowance system remains unchanged. Accommodation, meals and incidental costs will be deemed to have been expended if         proof of these expenses can be submitted by the employee. “Incidental costs” is defined to mean any beverages (including alcoholic beverages), private telephone calls, gratuities and room service. The employee must be away from his/her usual place of residence in all cases. The deduction does not apply if the employer has directly borne the expenses in question. If the employer simply reimburses the employee for actual expenditure against documentary proof, then no tax is levied on the employee.

If there is no proof of expenditure, with effect from 1 March 2021, the following amounts are deemed to have been actually expended by the recipient who is obliged to spend at least one night away from his/her usual place of residence on business and to whom an allowance has been granted or paid -

  • where the accommodation to which that allowance relates is in South Africa and that allowance is paid or granted for -
    • incidental costs only, an amount equal to R139 per day, or
    • the cost of both meals and incidental costs, an amount equal to R452 per day, or
  • where the accommodation to which that allowance relates is outside South Africa, and that allowance is paid or granted to defray the cost of meals and incidental costs, an amount which varies according to the country visited. Details are available in the Legal and Policy section on the following SARS website. 

DETERMINATION OF THE DAILY AMOUNT IN RESPECT OF MEALS AND INCIDENTAL COSTS FOR PURPOSES OF SECTION 8(1) OF THE INCOME TAX ACT, 1962 (ACT NO. 58 OF 1962) 

  • As a new concession, with effect from 1 March 2021, the following amounts are now deemed to have been actually expended by the recipient employee where the employee, on the instructions of the employer, is obliged to spend part of a day away from his or her place of work or employment. The amount is R139 per day to cover meals and other incidental costs if the costs are incurred in furtherance of the trade of the employer.