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Sars aims to tighten up employer provided car tax

Wednesday, 11 July 2012   (0 Comments)
Posted by: SAIT Technical
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By Christy Filen

Tax amendment bill does some cleaning up.

A proposal in the recently released Taxation Laws Amendment Bill, 2012, aims to bring rented vehicles into the loop when companies provide these to their employees for business and incidental private use.

The current legislation makes provision for the calculation of a taxable fringe benefit on the private use of vehicles provided to employees which is subject to a monthly pay-as-you-earn deduction.

The existing calculation is based on a ‘determined value' or original cost/retail market value of employer purchased/owned vehicles (either directly or via finance leases) but this does not cater for vehicles rented in terms of an operating lease, according to the bill.

However, the bill says that due to the economic downturn, increasing security and collateral requirements and companies tightening their belts, the provision of vehicles to employees under operating leases is becoming increasingly popular.

The proposal is limited to employer provided vehicles for business use, and the vehicle being rented under an operating lease from unconnected third parties at an arm's length price.

The operating lease arrangement must include the following:

  • The employer must rent the vehicle from a lessor in the ordinary course of the lessor's business (other than a bank, financial services business or insurer);
  • The vehicle may be leased by the general public for a period of less than a month;
  • The costs of maintaining the property must be borne by the lessor (including any repairs to the vehicle necessary due to normal wear and tear); and
  • The risk of loss or destruction of the property must not be assumed by the lessee.

The actual costs incurred by the employer in the form of the rental contract and related costs will then form the basis for the monthly value of the rental vehicle.

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

The benefit of using an employer's petrol card must be reflected separately as a travel allowance.

Billy Joubert, tax director at Deloitte, explained that the proposal to tax the fringe benefit from rented vehicles was not the closing of a loophole but more of a clearing up of an anomaly.

"It makes everyone's life easier as it was a battle for employers to know what should be used in the calculations. There are some anti-avoidance measures in terms of making sure that the operating lease is at arm's length for example but this change just helps in making things clearer," said Joubert.

He pointed out that this was part of a broader trend to try and neutralise the benefits of non-cash forms of remuneration as opposed to employees receiving cash.

"In terms of the structuring of remuneration packages, there are very little opportunities to do this anymore," said Joubert.

The proposed amendments are effective in respect of years of assessment commencing on or after March 1 2013.

Other proposals in the bill, amongst others, include the replacement of the remaining aspects of the deduction system for medical expenses with the tax credit system. This is to include all medical scheme contributions and qualifying medical expenses for all taxpayers.

On the positive side, a new exemption is being proposed for compulsory annuity income that has its origins from non-deductible retirement contributions.

If retirement fund interests are used to generate annuity payments, these are fully subject to normal income tax. No relief is currently available in respect of non-deductible retirement contributions against annuities received, even if the individual's non-deductible contributions exceed all lump sums.

A clean up around timing issues and implementation for Government Employees Pension Fund and other public sector funds for dividing retirement interests in divorces, otherwise known as the "clean break principle," also forms part of the proposals in order to ensure that ex-spouses are not tied to one another in tax terms.

Comments from the public on the proposals need to be sent to National Treasury or Sars by July 31, 2012.

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