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How to 'audit-proof' your employee's relocation costs

by , 18 October 2013
Watching your business grow is exciting. As it expands and you open additional offices, you may need to transfer an employee from one branch to another. While you're prepared to pick up the costs related to such a transfer, you don't want these costs to trigger a SARS audit. Read on to discover how to get the treatment of relocation costs right.

Relocating a staff member who knows and understands your systems and business procedures is often preferable to hiring an outsider who doesn't have the benefit of such experience.

While you, as an employer, may be prepared to meet the out-of-pocket expenses your employee may incur as a result of the relocation, SARS is usually sniffing around for its share as soon as you pay anything to (or on behalf of) an employee.

They'll be on the lookout for any arrangement that appears to be a tax avoidance scheme rather than legitimate payments for business expenses.

But the good news is you can protect yourself and stand up to SARS' scrutiny if you have the knowhow.

Here's how to get the tax treatment of your relocation costs right

The Practical Tax Loose Leaf Service explains that if you claim that an amount qualifies for deduction from taxable income, or is exempt from the levying of income tax, the burden of proof rests with you,

The Loose Leaf Service adds, 'proving that an amount is exempt (in the case of a payment to an employee), or qualifies for deduction (in the case where you seek to deduct such payment), is far more difficult if payments are made on an arbitrary or ad-hoc basis.'

That's why you must have a sound and comprehensive policy that deals with such payments.

This'll help ensure you're in line with the law should SARS decide to conduct an audit on either your payroll or your company income tax.

Warning: Failing to draw up such a policy not only exposes you to SARS audits, but also leaves you vulnerable to accusations of unfairness if a particular expense is covered for one employee and not for another.

Remember, employees talk, and disgruntled employees talk even more vigorously.

As such, SARS audit departments consider disgruntled employees to be among one of their top sources of tip-offs.

So make sure you have a policy that regulates relocation costs.

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