Does foreign service income affect the taxable income calculation for a subsistence allowance?

Yes, foreign service income will affect the taxable income calculation for a subsistence allowance paid out on the same payslip. Foreign service income is not reported under the standard income tax codes, as SARS has prescribed specific codes to correctly track foreign service income, and the application of the cap on taxable income. Therefore, there are some differences in how a subsistence allowance is calculated and reported; please see the examples below on how the subsistence allowance will be reported on the IRP5 if foreign service income is earned.

1. An employee earns only foreign service income and receives an international subsistence allowance.

   • Code 3764 Other allowances (Non-Taxable)(Foreign)
   • Code 3765 Subsistence allowance – foreign (exceeding deemed amount)(Foreign)

2. An employee earns only foreign service income and receives a local subsistence allowance.

   • Code 3764 Other allowances (Non-Taxable)(Foreign)
   • Code 3704 Subsistence allowance – local (exceeding deemed amount)(Foreign)

When an employee earns both foreign service income and local income, the subsistence allowance must be apportioned to account for the ratio of local income to foreign service income. Please see the examples below.

Example

We will use these payslip values below for both examples. For March, an employee earned the following:

• R50 000 foreign service income
• R24 000 local income
• R10 000 subsistence allowance (R4 000 of the subsistence allowance is below the limit, and R6 000 is above the limit.)
• Therefore, the total taxable income is: 50 000 + 24 000 + 6 000 (above the limit) = R80 000

First, we must calculate the amount reported under local income. The formula for the local income portion is (local income ÷ total taxable income) × subsistence allowance. We can then use the local income amount to calculate the amount reported under foreign service income.

• Below the limit: (24 000 ÷ 80 000) × 4 000 = R1 200. Therefore, R1 200 will be reported under local income, and (4 000 - 1 200) = R2 800 will be reported under foreign service income.

• Above the limit: (24 000 ÷ 80 000) × 6 000 = R1 800. Therefore, R1 800 will be reported under local income, and (6 000 - 1 800) = R4 200 will be reported under foreign service income.

It will be reported as follows – depending on whether the subsistence allowance was an international or local one:

1. International subsistence allowance with both local and foreign service income.

   Local income portion:

   • Code 3714 Other allowances (Non-Taxable) - R1 200
   • Code 3715 Subsistence allowance - foreign (exceeding deemed amount) - R1 800

   Foreign income portion:

   • Code 3764 Other allowances (Non-Taxable)(Foreign) - R2 800
   • Code 3765 Subsistence allowance - foreign (exceeding deemed amount)(foreign) - R4 200

2. Local subsistence allowance with both local and foreign service income.

   Local income portion:

   • Code 3714 Other allowances (Non-Taxable) - R1 200
   • Code 3704 Subsistence allowance - local (exceeding deemed amount) - R1 800

   Foreign income portion:

   • Code 3764 Other allowances (Non-Taxable)(Foreign) - R2 800
   • Code 3754 Subsistence allowance - local (exceeding deemed amount)(foreign) - R4 200