Rental or Travel Allowance? The Treatment of Payments to Director for the Use of Personal Vehicles
❓Member Query
A client who owns a vehicle and a truck which he rents out to his company of which he is the sole Director. He has been receiving ‘’rental income’’ of R20 000 per month for this agreement.
What is the correct treatment of this transaction for tax purposes?
How should this be accounted for in the books of the company?
✅ Our Response
Income Tax: From the Perspective of the Director-Employee
For income tax purposes (Individual taxpayer – ITR12), the R20 000 received is regarded as a travel allowance, not rental income. This treatment is in accordance with section 8(1)(b)(iv) of the Income Tax Act.
If the employee receives any additional travel allowances, these must be consolidated when completing the ITR12 return.
Accordingly, the director—who is regarded as an employee for income tax purposes in this context—may claim business kilometres against the total combined travel allowances.
For the employer, there is a PAYE implication when paying a travel allowance. The relevant SARS guide for Employers in respect of Allowances that explains in par 3.2 of the guide that if you are happy that the vehicle is used 100% for business purposes, you may pay PAYE on the 20% of the allowance on a monthly basis - i.e. R4,000 (this is the minimum). SARS requires a monthly determination of this amount. The final correction is made on the ITR12 return of the individual.
There is also a requirement for a logbook that must be maintained. You can find the details on the format in the SARS eLogbook guide.
Accounting records: from the perspective of the company
IFRS for SMEs references:
Section 2.14: Faithful Representation of the Substance of the transaction. The form of a transaction (calling it “rental”) cannot override its substance.
Section 28: Employee benefits → The R20 000 is remuneration for services.
Even though SARS taxes the amount as a travel allowance, for accounting purposes under IFRS for SMEs, the focus is on the substance of the transaction.
What is the substance of the transaction?
The director is providing the use of a personal vehicle to the company.
The company receives a service (right of use), and the director receives compensation.
What does this mean for accounting?
Under IFRS for SMEs, the payment is treated as an employment-related expense (employee benefit), not rental.
It is not a lease in the company’s books because the company does not have control of the asset, only the right to use it intermittently.
Therefore, the payment is recorded as an employee travel/vehicle allowance expense.
Suggested monthly journal:
Debit: Travel/Vehicle Allowance Expense – R30 000
Credit Director’s Loan or Bank – R30 000
