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Tax on a Company Car unravelled. Effective March 2011
- Having use of a Company Car is defined as a Fringe Benefit under heading "Right of use of Motor Vehicle."
+ Any type of benefit (or at least the unexpended portion of it), is taxable in the hands of an employee.. which includes any form of transport benefit
- Regarding transport for your employees for business purposes, are there two options...
providing a Company Car or paying a Travel Allowance
If your employee holds an important position in the business, and does a lot of traveling for business, is the Company Car the more cost and tax effective option. Alternatively, is the Travel Allowance the more flexible option.
- The rules regarding the calculation of Income Tax and in particular the deduction of PAYE has changed for Company provided motor vehicles, to take effect from March 2011.
+ Essentially has the rate at which a Company Car is taxed increased from 2.5% to 3.5%, but is the employee now allowed to reduce this Taxable Value iro. actual business kilometers done according to a Logbook.
-SARS does provide information on their Website regarding the taxation of Company Cars under the document 'GUIDE FOR EMPLOYERS IN RESPECT OF FRINGE BENEFITS (2012 TAX YEAR) dated 12/4/2011', but if your are lucky to access it, will you find that it is confusing and full of errors. Herewith our attempt to clarify the matter...
DETERMINED VALUE OF VEHICLE (DVV)
-The DVV will be the cost price of the Car, including VAT. Where a Maintenance Plan is provided, must such additional cost be included in the DVV.
+Finance and Interest charges are excluded.
+Where the employee is first granted use of the car more than 12 months after it was purchased, may such purchase price be depreciated at 15% per year on the reducing balance.
MONTHLY FRINGE BENEFIT (TAXABLE) VALUE.
-Once you have the Determined Value of the Vehicle, can you proceed to calculate the Monthly Fringe Benefit (Taxable) Value......
-The monthly Fringe Benefit (Taxable) Value of such a Company provided car, is...
+if price does not include a Maintenance Plan, 3.5% of the DVV.
+if price does include a Maintenance Plan, 3.25 % of the DVV.
#Where an employee pays certain costs iro. the vehicle, may such costs be deducted from the above calculated figure to give a nett monthly Fringe Benefit (Taxable) Value.
#It is this value that must be reported against Tax Code 3802 for the employee's Tax Certificate (IRP5).
BALANCE OF REMUNERATION AND PAYE.
-The monthly Balance of Remuneration iro. such vehicle that must be added to an employee's other monthly Balance of Remuneration for the purposes of calculating PAYE, is 80% of the above Monthly Fringe Benefit (Taxable) Value.
+If however the Employer is satisfied that at least 80% of the use of the car will be for business purposes, then only 20% of the Monthly Fringe Benefit (Taxable) Value need to be added to the employee's monthly Balance of Remuneration.
LOG BOOK, TAX RETURN, ASSESSMENT AND TAX REFUND
-Bearing in mind that the above calculated and deducted PAYE is a kind-of provisional tax, if the employee can show via a properly completed Logbook what distances had been travelled for legitimate business purposes on his Tax Return, will such Business Kilometers X the Rate/km cost of running the vehicle be credited against the Fringe Benefit (Taxable) Value, which should then result in a refund iro. PAYE deducted on the Company Car Fringe Benefit.
Pierre Leon Myburgh