Author: Ian Hurst — Managing Director, Paymaster People Solutions
Consider the following scenario: Your company requires you to relocate to another town. They present you with an offer and you accept the decision to move. All your transfer costs and related expenses will be covered in full, by the company.
But, did you know that there are some expenses that your company might reimburse which could be tax exempt? Let’s discuss this by first taking a look at some of the rules related to company funded relocations.
What are some of the rules related to company funded relocations?
- A person needs to move from one town/city to another. A move in the same town or city will not qualify for tax free reimbursing of expenses.
- The expenses must be legitimate and reasonable expenses relating to the move. So, for example, a new super-large ‘flat-screen’ television set for the wall in your lounge won’t qualify.
- The company may pay the relocation costs directly to the supplier, or you can be reimbursed too.
What are the allowable tax free reimbursements (which must be indicated under code 3714 of your personal tax return)?
- All transport costs related to relocating your family and your possessions to your new home.
- All costs related to the selling of your former home, as well as the new home. This includes all agents’ commissions, bond cancelation costs, legal fees and any other related expenses. Note though: This excludes maintenance or repairs to your house that would have been required in terms of the occupancy certificate.
- Certain costs for temporary accommodation in the new town/city where you have relocated to. The temporary accommodation period may not exceed 183 days after the appointment date. Whilst you wait to move into your new home, hotel accommodation and all meals, or temporary rental accommodation also falls into this category of expense that will be covered.
- For your children: New school uniforms and books if required.
- Motor vehicle registration costs.
- All initial setting-up of communications and electricity connections — for example: telephone, data-line and electricity.
What constitutes taxable costs (which must be indicated under code 3713 of your personal tax return)?
- If you are reimbursed because you sold your house at a loss, then the loss-amount that your company reimburses you for, will be taxed.
- Any architects’ fees or alteration costs to the old or new residence as a result of the relocation.
A company transfers an employee from Pretoria to Cape Town. The company has already paid for the transfer of the employee’s personal goods and made arrangements for the employee and members of his household to stay in a hotel on the employer’s account for the six months during which the employee’s new house is being built.
The employee claims the following expenses for which he was fully reimbursed by the employer:
- New school uniforms purchased: R1 750
- Curtains made for new residence: R8 360
- Motor vehicle registration fees: R216
- Telephone, water and electricity connections: R1 015
- Loss on the sale of the previous residence: R12 000
- Architect’s fees for the design of the new residence: R7 600
- Bond registration and legal fees for the new residence: R6 800
- Transfer duty on new residence: R25 000
- Agent’s fee on sale of previous residence: R16 397
- TOTAL costs related to employee’s relocation: R79 138
The employer must deduct employees’ tax from items 5 and 6 because they are not exempt from tax. Accordingly, the value of these two items must be reflected under code 3713 of the employee’s personal tax return. All other items (excluding items 5 and 6) are exempt from the deduction of employees’ tax. As such, the total value of these items must be reflected under code 3714 of the employee’s personal tax return.
A concluding recommendation would be to reach upfront agreement on these conditions, with the employee concerned. Make sure both parties agree to what will be paid by the company and what will be excluded. Be sure to clearly inform the employee if there ant tax implications relevant to the final agreement reached.
You are invited to email me, Ian Hurst, for more information. I will be happy to entertain any further enquiries that you might have.
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