In South Africa, company vehicles are a popular and valuable benefit for employees. However, both employers and employees need to be aware of the tax implications associated with company cars.
Use of Motor Vehicle Fringe Benefit Tax
If an employee is granted the right of use of any company motor vehicle for private or domestic purposes, the taxable value of the vehicle must be added to the employee’s remuneration each month. i.e. additional PAYE will be deducted and paid to SARS.
The fringe benefit value is calculated as a percentage of the determined value of the car (as per the SARS guide here) and the percentage will depend on whether the original purchase price included a maintenance plan. The applicable percentages are as follows:
Maintenance plan: 3.25% per month of the determined value
No maintenance plan: 3.5% per month of the determined value
The fringe benefit value is either 80%, 20% or 100% taxable, depending on the proportion of private use:
If the vehicle is used 80% or more for business purposes, the value of the company car benefit is 20% taxable.
If the vehicle is used less than 80% for business purposes (but there is some business use), the value of the company car benefit is 80% taxable.
If the vehicle is used 0% for business purposes (i.e. it is only used privately), the value of the company car benefit is 100% taxable.
Travel Logbook and Employee Personal Income Tax Return
When the employee prepares their personal income tax return, they will need to enter the actual split between business and personal travel, in order to avoid being taxed on the full value above. In order to qualify for these reductions, employees must maintain a detailed logbook of business travel.
Distance between employees' home and usual place of work
This is unfortunately not considered business travel. Travel from an employee's home to a client would be considered business travel.
No employees tax for Pool vehicles
The private use of a motor vehicle by the employee shall be deemed to have no value, if:
The vehicle is available to and is used by other employees of the employer in general and the private use of the vehicle by the employee is infrequent or is merely incidental to the business use and the vehicle is not normally kept at or near the residence of the employee concerned when not in use outside business hours; or
The nature of the employee’s duties is such that he/she is regularly required to use that vehicle for the performance of such duties outside his/her normal hours of work and he/she is not permitted to use such vehicle for private purposes other than:
Travelling between his/her place of residence and place of work, or
Private use is infrequent or is merely incidental to its business use.