The differences between an allowance, an advance, and a reimbursement are critical when it comes to tax
WHAT’S THE difference between an allowance, an advance, and a reimbursement? To many people these are different terms for the same thing, but to SARS, the category that a payment falls into is critical when it comes to the taxation thereof. Thankfully SARS has recognised that certain tax concepts have become complicated for the ordinary taxpayer, and has issued Interpretation Notes covering a number of the grey areas.
In the case of allowances, advances, and reimbursements, Interpretation Note 14* sets out how SARS understands these three terms—and, most importantly, how each one will be treated for income tax purposes in accordance with Section 8 of the Income Tax Act.
However, it is important to note that, from the employer’s perspective, any allowance or advance granted, or reimbursement made, must reflect actual or anticipated business expenditure to be incurred by the employer. It therefore stands to reason that …
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