What is a travel or car allowance?

A travel allowance, also often referred to as a car allowance, is the amount of money your employer can pay you for work-related travel without you having to account to your employer for that expenditure.

The allowance should, however, be based on your anticipated work-related expenditure.

As an employee, you can reduce the allowance by claiming your work-related travel expenses when you declare your income for tax purposes.  

Why do you get paid a travel allowance?

As an employee you may be required to travel for work purposes – to different sites within your employer’s business, to visit clients, suppliers or other business contacts.
If this is the case, your employer can pay you a fixed monthly travel or car allowance as part of your remuneration. This regular amount is to compensate you for the costs of that travel using a privately owned vehicle.

Who can be paid a travel allowance?

You can be paid a travel allowance if it is a condition of your employment that you use a privately owned vehicle for work or business purposes.

You should not be paid a travel allowance that is based only on your rank or pay grade, if you work only at the office and do not travel for work purposes.

Your allowance should be based on your anticipated work-related or business travel expenses.

How is the allowance taxed?

Any allowance you receive is fully taxable. However, the Income Tax Act allows you to reduce the travel allowance by the actual business kilometres travelled. Therefore, any portion of the allowance paid to you that is not offset by your business travel expenses is added to your taxable income.

For Pay As You Earn (PAYE) purposes, only 80 percent of the allowance is taxed on a monthly basis when your employer withholds tax to pay to the South African Revenue Service (SARS).

This assumes your tax deduction for travel expenses will be at least 20 percent of the allowance.

However, if your employer has reason to believe that your travel expenses for business purposes will be at least 80 percent of the allowance, your employer can apply PAYE to just 20 percent of the allowance.

The exact tax to be applied to the allowance is, however, determined on assessment of your tax return for that tax year.

The tax due on the allowance will be compared to the PAYE you have already paid on it. Depending on your travel expenses, you may then have paid too much tax or too little tax on the allowance.

If your employer is deducting PAYE from 80 percent of the allowance and your travel expenses exceed 20 percent of the allowance – for example, if the allowance is R3 000 a month and your travel expenses are more than R600 a month, you have paid too much tax on the allowance and it may offset tax you owe or be due to you as a refund.

If your employer taxes only 20 percent of your allowance and your travel expenses amount to less than 80 percent, you will have paid too little tax on the allowance and, assuming the correct tax has been paid on the rest of your earnings, you may on assessment owe more tax.

Remember, SARS assesses your actual business travel claim relative to the total allowance to determine your taxable income and then calculates the tax due on that relative to the tax you have already paid through a PAYE deduction.

The full travel allowance paid to you over the tax year will be recorded on your IRP5 next to the code 3701 and your employer will submit this information to the South African Revenue Service.

It is your responsibility as a recipient of a travel allowance to declare your business-related travel expenses on your tax return to enable SARS to determine the tax deduction to which you are entitled.

How can you claim a travel allowance deduction?

In order to claim your travel-related expenses as a tax deduction against a travel allowance you are paid, you need to:

• Record your odometer reading on the first day of the tax year (1 March) and the last day of the tax year (28 or 29 February). This shows your total mileage in the vehicle. If you use more than one vehicle, record the odometer readings for each and if you replaced one vehicle with another during the tax year record the odometer reading on the day your stopped using the first vehicle and the reading on the second vehicle on the day you started using that vehicle. Provide this information on your tax return;
  
  
• Record the mileage or kilometres of any work-related trip in a logbook;
  
  
• Record the reason for your trip in the logbook;
  
  
• Record your actual expenses related to your vehicle or use the deemed expenses published by SARS.
  
  

  REMEMBER  Business-related travel does not include your trips from home to your place of work and back. This is regarded as private travel and should not be included in your work-related or business mileage.

• Actual costs

If you want to claim the actual amounts you spend on your vehicle during the tax year, you need to record them in detail in your logbook. You should include:

• Fuel and oil costs;
• Licensing and insurance costs;
• Maintenance costs;
• Wear and tear; and
• Lease payments.

You should record all your expenses and SARS will apportion them between your private and work-related travel in order to determine the tax deduction for business-related travel.

• Deemed costs

If you do not want to record your actual expenses, you can claim your costs using the deemed costs per kilometre published by SARS. The deemed cost per kilometre is published in the Government Gazette each year when the budget and tax rates are announced.

The deemed rate per kilometre that will apply depends on the value of your vehicle and is made up of a fixed cost, a fuel cost and a maintenance cost. The deemed rates increase as the value of your vehicle increases.

You do not have to calculate the amount of your expense claim – SARS will do this for you when your tax return is assessed – you only need to supply the cost price including VAT of the vehicle when you purchased it, the cash price if you are leasing a vehicle or the market value including VAT when you first acquired the use of the vehicle.

SARS also has the right to limit the cost price or cash value of your vehicle and hence your claim.

Buy a car to suit your budget not your allowance

Remember that running a vehicle is expensive. The more expensive your vehicle, the more it will cost you in fuel, maintenance and insurance. You will not be able to claim all these expenses against a travel allowance because you will also have private travel.

An expensive vehicle will reduce what you have to live on and most salary packages are offered on a cost-to-company basis, which means you sacrifice salary to be paid a travel allowance. Read more: What should I think about when buying a car?

No travel allowance

If you are not paid a travel allowance but you use your vehicle for business-related travel, your employer can pay you a tax-free reimbursive allowance at a rate set by SARS. 

If you are not paid a fixed travel allowance but use your personal vehicle for business-related travel, your employer can reimburse you using SARS’s prescribed rate (currently R4.64/km for the 2025 tax year). This reimbursive allowance is tax-free provided the reimbursement does not exceed the prescribed rate.

This article was reviewed by the South African Institute of Taxation’s Tax Technical Team