How do I calculate the ‘company car’ fringe benefit after the car has been fully depreciated?

Author: SAIT Technical

Q: I would like guidance on the taxable benefit on a company car.

The company bought a company car for a staff member. The monthly taxable benefit is reflected on the payslip and the tax calculated. The car is depreciated over 5 years and the finance is also over 5 years.

The company car is also under a maintenance plan that expires after the 5 years. The taxable benefit was thus calculated on this basis.

How must the taxable benefit be calculated after the 5 years, if the staff member continues to use the car?

A: The determined value of the vehicle will remain the same irrespective of whether the maintenance plan expires, as para 7(4)(a)(i) refers to the value inclusive of the maintenance plan at the time the motor vehicle is acquired. Note that the rate applied in such instance is the lesser rate of 3,25% as it recognised the higher cost acquisition cost due to the maintenance plan. However the original cost, which is fixed, becomes proportionally less due to the time value of money. Depreciation on the car is only considered in terms of proviso (a) to para 7(1) where the employee received the use of a previously used vehicle of the employer which that employee did not previously use. In such instance the value of the vehicle will be reduced by 15% per annum on the reducing balance method for each full 12 months in the period from date of acquisition by the employer to when such employee received the use of the vehicle. 

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