Driving a company car could result in a tax refund
19 July 2011
Posted by: SAIT Technical
Keeping a logbook to record your business kilometers could result in a tax refund on assessment. With effect from March 1 this year, Sars increased the monthly taxable fringe benefit on motor vehicles. But it's not necessarily all bad news.
From the beginning of March, the fringe benefit - the private use of a company car - is calculated on the cost of the vehicle to the company (now including VAT), at a rate of 3.5% per month. So if your car cost R200 000 (including VAT) you'll be taxed on R7 000 in addition to your normal salary on a monthly basis for having the use of the car.
However, in some cases, if the car was purchased with a maintenance plan, the fringe benefit may be calculated at a reduced rate of 3.25% per month.
Other factors can also be used to reduce your final taxable fringe benefit at year-end depending on whether you, or your company, incurred the maintenance and fuel costs of the vehicle and whether accurate records were kept.
As with a travel allowance, it's vitally important to keep accurate records of the private kilometers you travel during the tax year. If you have accurate records, you'll be able to receive a deduction similar to that claimed with a travel allowance.
Where you, as the employee bear the full cost of insuring, maintaining and licensing the vehicle, on assessment, the taxable fringe benefit will be reduced in a ratio proportionate to the total private distance travelled compared to the total distance travelled.
If you're responsible for the full cost of fuel, the total taxable fringe benefit can be reduced by the value of the private distance travelled by applying the rate per kilometer as used when calculating a travel allowance.
If you're lucky enough to have been given a car to drive, with all its expenses paid for by your employer, and if you have kept accurate records of your private kilometers, you'll still be eligible to receive a deduction on assessment.
As the monthly fringe benefit is included in your remuneration, it will be subject to employee's tax, which will be withheld from your monthly pay and calculated on 80% of your total taxable monthly fringe benefit. As with a travel allowance, a logbook can, however, be used on assessment to reduce the total tax due based on the total private distance travelled which might even result in a refund.
In cases where you can motivate that the car provided to you is almost exclusively used for business and it can be proved that at least 80% of the distance you travel relates to business travel, your employer only has to deduct employees tax from 20% of the taxable monthly fringe benefit monthly.
But you'll need to convince your employer that your car is mainly used for business because if Sars finds that your private travel exceeds 20% of the total kilometers travelled, your employer might have to pay interest and penalties for underpaying employees tax during a particular year of assessment.
*Sharon MacHutchon is a tax specialist at global audit, tax and advisory firm Mazars.