MARCH 2025 – South Africa – Understanding the travel allowance tax deduction for business kilometres
Many taxpayers are still unsure how reimbursements for business travel work. Let’s clear things up.
When an employee receives an allowance or advance to cover travel expenses for business purposes, this is classified as a travel allowance.
There are two key ways this can be structured:
- A travel allowance paid to help cover transport costs, usually as a fixed amount per pay period.
- A reimbursement based on actual business kilometres travelled.
Since these two methods are taxed differently, it’s important to understand the distinction.
Each year after the national budget speech, a Government Gazette is published outlining the updated per-kilometre rate for motor vehicle travel.
The rates per kilometre for business travel – used to calculate allowable deductions when actual costs aren’t claimed – are outlined in the table below:
Calculating the value of the vehicle
Working out the tax value of a motor vehicle for an employee’s travel allowance will depend on how they acquired the vehicle:
- Purchased outright: If the vehicle was bought through a standard sale or trade-in under fair market conditions, the value is the original purchase price, including VAT, but without any interest or finance charges.
- Leased and later purchased: If the employee leased the vehicle under a specific instalment credit agreement, or purchased it at the end of a lease, its value is the “cash value” as defined by VAT laws.
- Other situations: In all other cases, the value is based on the market price at the time the vehicle was acquired, plus the VAT that would have applied if it had been bought at that price.
Essentially, the tax value of the vehicle is determined by its purchase price, lease terms or market value, depending on how it was acquired.
Determining the rate per kilometre
When calculating the per-kilometre rate for a travel allowance, three main cost factors come into play:
- Fixed costs: These include expenses like insurance, licence fees and depreciation. The total fixed cost is divided by the total kilometres driven (both business and personal) over the tax year. If the car was used for business purposes for only part of the year, the fixed cost is adjusted accordingly.
- Fuel costs: If all the fuel was paid for by the employee, the fuel cost per kilometre is added.
- Maintenance costs: If the employee covered all maintenance costs such as servicing, repairs and tyres, these costs per kilometre are also included.
Adding these three components together gives the final per-kilometre rate for tax purposes, ensuring it accurately reflects the actual travel expenses.
 Simplified method
The simplified method uses a fixed rate per kilometre when no additional allowance, advance or reimbursement – apart from parking or toll fees – is provided by the employer.
For the 2025-2026 tax year, the prescribed rate per kilometre – also known as the AA rate per kilometre – is R4.76. This rate applies when no additional allowance, advance or reimbursement (apart from parking or toll fees) is provided by the employer.
Here’s what you need to know about the tax implications:
- If the reimbursement is at or below the prescribed rate, it’s non-taxable.
- If the reimbursed rate exceeds R4.76 per kilometre, it becomes part of taxable remuneration for PAYE purposes, regardless of how many business kilometres were travelled.
Unlike a fixed travel allowance, where 80% of the amount is subject to PAYE, the full amount exceeding the prescribed rate is taxed.
Need more guidance? The CRS legislation team is here to help. Reach out to us at info@crs.co.za.
