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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...

-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.

-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).

-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.

-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