Last week, Personal Finance incorrectly reported ("End of the road for tax breaks on car allowances") that you cannot include a vehicle (travel) allowance in your pensionable salary when calculating the percentage of your income that can be used to invest in retirement savings vehicles, such as retirement funds and retirement annuities (RAs), that provide tax incentives.
Various limits are set on the maximum amount you can claim each year as a tax deduction for contributions to a tax-incentivised retirement savings vehicle.
On your pensionable income you may claim up to 7.5 percent of your pensionable salary as a deduction against income tax.
You may also claim as tax deductions retirement annuity fund contributions up to 15 percent of non-retirement funding earnings.
Johannesburg-based PAYE tax specialist Ron Warren, who is the managing director of Pay Squad, says the Income Tax Act makes specific provision for 100 percent of a travel allowance to be included in retirement-funding income (that is, pensionable salary) if the rules of a pension or provident fund allow this.
Warren says it is the rules of the pension or provident fund that are decisive in this matter, and SARS has no say at all.
An employee's income is made up of two portions - retirement funding income and non-retirement funding income.
Retirement funding income is effectively the "pensionable salary" which may or may not include your travel allowance.
He says modern practice, where an employee is paid a total remuneration package (of which a travel allowance may form part), is for the rules of the pension/provident fund to define "pensionable salary" as that portion of the employee's total remuneration package that the employer and the employee jointly agree as comprising pensionable salary.
An employee in this position can select a percentage of his or her total package (irrespective of how it is composed) that must be regarded as his or her pensionable salary, and pension contributions and benefits will be calculated on that amount.
The percentage that can be chosen typically varies between 60 and 100 percent of the total remuneration package.