The great vanishing act: no more one month’s tax-free relocation allowance

Tanya Tosen, tax and benefit specialist at Remuneration Consultants.

For as long as can be remembered, the South African Revenue Services (SARS) has always allowed one month’s salary as a tax-free allowance that was offered to employees who were being relocated. This was typically used to cover expenses such as curtains, internet connections, water and electricity connections, news school uniforms, vehicle registration fees to name but a few.

No justification was ever required in terms of how the relocation allowance was spent by employees and therefore no onus of proof in the form of receipts and other relevant documentation were requested by employers in this regard.

Binding private ruling

Recently however, 1st March 2016 to be exact, the law on this one month’s tax-free relocation allowance was repealed by SARS which went unnoticed by many employers and employees alike. The impact of this change, was that employers had to now fix retrospective amounts and correct their historical records to comply with the changes in legislation.

In addition, the External Guide: Guide for Employers in Respect of Employees’ Tax (2017 Tax Year) still made reference to this one month’s tax-free allowance. This was subsequently deleted in the revised version dated 5th July 2017. Employers rely heavily on this guide for practical guidance, however this deletion between versions has subsequently created a lot of confusion amongst employers.

This is possibly one of the reasons that a binding private ruling from SARS was requested, issued in November 2017, almost a year and half later than the initial repeal of the law. This is also indicative that employees were possibly challenging the tax treatment of relocation allowances provided by employers.

Outcome

The outcome of the binding private ruling specifically states that this one month’s tax-free allowance will no longer be exempt from taxes. This will now constitute “remuneration” and employees’ tax will need to be withheld from this amount.

Overall, employers should now take cognisance of the SARS Binding Ruling and re-assess their current treatment of relocation allowances. Employers also need to consider the impact this change now has on expatriates’ pay.

It is advisable that employers amend relocation policies and practices to ensure full compliance with the legislation governing these allowances and that employees are aware of the tax treatment of relocation allowances in the future.