Company car or Car allowance?

To quote Hamlet:  “Company car or car allowance that is the question”  
(I am sure if he lived in the 21th century he would have asked it exactly like that)

This question of tax on fringe benefits is a difficult one.  Do I choose a company car or do I go for a travel allowance or should I just reimburse the KM travelled?

The most important thing that any taxpayer must remember is how important a logbook is in all 3 situations above.  I always tell my clients that the only way to prove your business kilometers is by completing a logbook.  You will feel that it is a waste of your time, but at the end of the tax year you will save money. Without a logbook no deduction is allowed.

TRAVEL ALLOWANCE    Actual Costs vs Deemed Costs

Actual costs:

Actual costs must be substantiated by a logbook as well as actual cost incurred on the vehicle.  Actual costs include the following:

1. Fuel and Oil
2. Repairs and Maintenance on vehicle
3. Wear and Tear – over 7 years and cost is limited to R480 000
4. Finance charges – limited to a cost of R 480 000
5. Insurance on Vehicle
6. Car tracker
7. Finance Lease payments – limited to a cost of R 480 000

Deemed Costs: Below are the new rates for calculating the travel allowance for your vehicle

80% of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.

No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (e.g. if the vehicle is the subject of a maintenance plan).

The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.

The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by a log book are used to determine the costs which may be claimed against a travelling allowance

Reimbursive allowance

Non-Taxable reimbursive allowance was increased to R 3.24 cents per km if employee does not travel more than 8 000 km per annum

Taxable reimbursive allowance: If reimbursed more that prescribed rate or travelled more than     8 000 km per annum

Taxable reimbursive allowance does not have to be included in the employee’s remuneration for PAYE purposes.  To claim travel expenses against the taxable amount – normal travel allowance rules apply.

COMPANY CAR

Employer-owned vehicles

Determined Value for fringe benefit:

1. Cash cost incl. VAT, but excl. finance charges and interest
2. Taxed on 3.5% per month of the determined value of the vehicle less any consideration paid by the employee towards the cost of the vehicle
3. Reduced to 3.25% if vehicle is subject to a maintenance plan for no less than three years and/or 60 000 km

80% of the fringe benefit must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that 80% of the mileage will be for business purposes

No value is placed on the private use of a company owned vehicle if:

1. It is available to and used by all employees, private use is infrequent and incidental to the business use and the vehicle is not normally kept at or near that employee’s residence when not in use outside business hours (pool car)
2. The nature of the employee’s duties requires regular use of the vehicle for the performance of duties outside normal hours of work and private use is infrequent or incidental to business use or limited to travel between place of residence and place of work

Employer-leased vehicles

Where the vehicle is acquired by the employer under an operating lease the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.3

This value can then be reduced for proven business use by using business kilometers travelled as a percentage of the total distance travelled.

CONCLUSION

It is always nice to get more out in a month, but at the end of the year it can cost you money.  Structure you salary package so that you can save money on tax. If you are unsure about the tax consequences of the salary package, seek advice from us your tax specialist.

Source: Janeske du Toit (Manager) from Newtons Chartered Accountants.