It’s tax season, and we all know what that means… Scrambling through an overloaded shoebox filled with receipts and trying to remember what your odometer reading was on on 1 March.
We know (in theory) that the costs incurred when travelling for work can provide you with significant business expense deductions. But the most confusing questions remain – what is deductible and what can I claim for tax purposes? In other words, when is the cost of a trip (or aspects of a trip) deductible as a business expense?
For the (un) lucky folk that manage their company’s corporate travel spend, calculating employees’ expense reimbursements is a notably hellish task.
Corporate Traveller South Africa GM Oz Desai offers a few guidelines to clarify what SARS allows you to deduct for business travel purposes:
Think practically… A travel expense is a type of business expense. Therefore, you must be able to meet the general business expense requirements in order to claim a deduction.
“Buying a flat-screen TV set or a surround speaker system while on a business trip is not a justifiable travel expense. A grande cappuccino at the airport en route from the conference is. But don’t push it – whipped cream and caramel fudge add-ons may not be essential for your business success.”
Here’s how you can test if it’s a reasonable expense
Obviously the test of reasonability is somewhat subjective, but best practice for corporates would be to create and communicate a list of guidelines, usually by job level. i.e. Senior Managers and Executives are allowed to fly business class on international travel, and may stay in 5-star hotels, with a meal allowance of up to R300 per person per meal.
It is advisable, says Desai, to adopt a standard meal allowance. This simplifies record keeping, and assuming the trip is fixed in advance at a certain length of time, the traveller can use the meal allowance with discretion. “Assuming you’re travelling away from home for the required length of time, you may decide to use some of your meal allocation on other sundries such as dry cleaning and gratuities.”
The advantage of using the standard meal allowance is that you don't have to keep records of actual meal expenses, although you still have to keep records to prove the time, place, and business purpose of your travel.
A potential disadvantage is the standard meal allowances may not adequately cover the claim, depending on the kind of (alcoholic) beverages you drink. The advice is to best avoid the single-malt whiskies under the pretence that you can file an expense claim. You probably can’t.
To claim basic travel expenses such as food, accommodation and transport, you need to be away from home for work purposes, unless there exists a prior arrangement between employer and employee.
You cannot check-in to the Sandton Sun, and claim a business expense because you prefer the quality of their mattresses over your own. The same goes with food. Obviously, if you are out-of-town for a business pitch, submitting a restaurant bill as an expense claim would be perfectly justified.
Not all food expenses are simple, straight deductions. If the expense is an essential part of the business’ functioning, i.e. in the media space – where as a reporter who by definition needs to travel as a business expense.
Even more obvious is the restaurant critic – who unless he is crazy, should naturally submit the expense claim as a deduction.
Remember to document your travel expenses
Arguably, the most important part of the process when travelling for business is to document your expenses. Save the physical receipts which should state the date, the amount spent and ideally the itemised nature of the purchases.
When you are an employee at a large business, the rules are probably more clear-cut and simple. You may claim back for X, and you may not claim back for Y. If you are self-employed, the grey area widens. SARS does have guidelines for freelance and contract workers, as well as sole proprietors or self-employed businesspeople.
As for travel by car; including expense claims related to petrol costs not associated with travelling from home to the office and vice versa, is accepted as standard practice.
If, for example, your regular job is desk-based, but on occasion you need to visit an important stakeholder 60 kilometres away, this might be considered sufficiently intermittent to be considered a deductible expense according to SARS.
Keeping track of what is a deductible expense can be a painful process, but done correctly by both the company and traveller it helps to reduce your taxable income so it’s worth doing. Just ensure you keep all the necessary documentation and organise it properly so that if SARS comes knocking, you’ll have more than shoebox with some slips to offer.
Desai offers five tips to submitting your travel and expense claim to SARS:
- Ensure that the expense serves a clear business purpose and is directly related to a business activity.
- Your T&E expenses must be substantiated with adequate records, including receipts, a log-book and/or accounts book. You need to be able to substantiate the date and time of the expense, names of business associates involved and the purpose of activity.
- Keep a subsistence log of when you travelled for business, to which destination and whether or not your meals were paid for by the company during your duty travel.
- Understand what is deductible and what isn’t before you submit your expenses so that you do not attract penalties.
- Take care when claiming VAT on entertainment expenses. Entertainment is one area in which SARS does not allow VAT deductions, although companies can claim VAT back on, among others, business travel and employee subsistence, domestic airfares, parking, toll fees and Internet costs.