The death of the company car

JOHANNESBURG - The news for those having the use of a company car is not good. The tax on company cars will be raised, creating a significant monthly cash-flow effect on individual taxpayers.

Currently the tax on a company car is a fringe benefit at 2.5% per month on the cash cost of the car, without any maintenance plan and excluding VAT. From March 1 next year it will be raised to 4% a month and include the maintenance plan and VAT. In other words, 48% a year is going to be deemed to be the value of the private use of the car. It is further anticipated that the carbon emissions tax, that was announced in the Budget speech and is due for implementation in September this year, will be a further cost factor to the value of the car (determined value).

Colin Wolfsohn a member of Saica's National Tax Committee and chairman of the Saica Southern Region Tax Committee says the South African Revenue Service (Sars) made the change to prevent arbitrage between travel allowances and the company car.

"With effect from March 1 2010 it increased the rate for someone who receives a travel allowance, where it deemed 80% of the allowance to be subject to employees' tax (previously 60%).  The employee when filing his/her personal income tax return now has to submit a logbook detailing the business kilometres travelled for the year in order to be entitled to a claim against the allowance received." he says.

Wolfsohn says the car allowance changes will have significant implications for taxpayers, for example:

1. Sars is deeming the vehicle to be used totally for employee's private purpose as a starting point;
2. The employee will be taxed on 80% of this 4% on the cost of the car per month (ie, taxed on 3.2% per month) :
3. The inclusion of VAT and the cost of the maintenance plan significantly increases the determined value ;
4. The employer deducts the tax on this fringe benefit on a monthly basis. The taxpayer can only claim a reduction of the 4% after it has been assessed through a complicated formula;
5. The taxpayer will need to keep a DAILY logbook of all business mileage used, which could prove incredibly onerous, as they will need to log each client they go to.
6. There is a note in the explanatory memorandum that Sars has the discretion to reduce the 4%, if the private usage is less than 10 000kms a year, but there is no clarity on how this will work;
7. It will have a significant cash-flow affect on individual taxpayers because each month they will be taxed on 80% of value of the fringe benefit and only on assessment, which will be four or five months after year end (if they're lucky) will they be able to submit their return and be assessed. After that, there could even be an audit or queries.

Integritax Podcast Company car tax changes (English) Download interview Voorgestelde verandering aan die maatskappy motorbyvoordele belastingwetgewing (Afrikaans) Download interview

There has also been a change to claiming back the tax.  Wolfsohn says Sars will still tax you on the fringe benefit at 4% but will reduce it by 20%, so you will be paying tax monthly on 3.2% of the fringe benefit (the private use of a company - owned vehicle).

He adds that if you as the employee pay any expenses, such as fuel costs, licence, insurance or maintenance, at the end of the year you will be able to make a claim against this fringe benefit on which you've been taxed. That too is likely to cause headaches, he says, because what Sars is saying, is depending on the private mileage travelled one will be able to claim back the fuel cost based on rates  laid down in  a table in the Government Gazette. (For examples on how this will work listen to the podacast in both English and Afrikaans).

Let's hope Sars takes cognisance of the difficulties the proposed changes will create.

Write to Monique Vanek: monique@moneywebtax.co.za

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Comments

 

responses to this article

Save with SARS If SARS is looking for the public to have savings accounts with them what is the interest? And why by the end of each financial year I have to wast 2 days going from one official to the other trying to get the money back? I am all for clumping down on the . .more abusers but there is a huge number of people, self employed or SMEs that are really using their cars to bring money for the companies. Is there no place to start voicing our opinion that the government will take notice? or the government can do what they like? By my calculation I pay over 50% of tax, and have what for it? Schools are deteriorating, hospitals are falling apart, security is non existent, electricity in short supply, water cannot be drank without being filtered, and I pay through my nose to travel on better roads. Let us not forget about the expenditure of our government officials. Congratulations suckers go and vote ANC in the next election and pay even more. . .less by Beata on May 31 2010, 07:03 Find this comment inappropriate? Report it

@ Beata: Sell your car and emigrate... You know it's the right thing to do. The grasping ANC looters won't leave the taxpayers alone until the last productive resident has left - which won't take too long the way things are going. by Alset on May 31 2010, 07:18 Find this comment inappropriate? Report it

More bad news for car sales Of course Government needs to restrict abuse of the system, but isn't this ill timed with Car Dealerships struggling as it is. by Gary on May 31 2010, 07:36 Find this comment inappropriate? Report it

SARS The easiest way around this is to give your employer the monthly petrol slips & maintenance invoices. The employer will reimburse you - everyone is happy. No tax of any kind! by graham on May 31 2010, 07:52 Find this comment inappropriate? Report it

What is wrong with this Government and it's agent SARS? The SA auto industry seems to be a never ending source of revenue for this kleptocracy. There's a 35% ad valorem trax on every new vehicle. And a new 5% emissions tax. Then there's 14% VAT. The government's tax share on a new vehicle is 35% 5% . .more 14%=54%. Yes 54% of the purchase price on a new vehicle goes to Government. Now add the tax on every litre of fuel that is purchased. Then add the toll road tax for the many kilometres travelled. Then add the annual licence fees for the vehicle. Then add the car allowance tax OR the new company car tax at 4%. Then add the speed persecution taxes for the local and provincial government coffers. Then add 35% ad valorem on spare parts and 145 VAT. Now add 14% vat on your garage repairs invoice. Then also compute in that the multi billion rand SA taxi industry pays no VAT on its transactions. Is this government and it's cohorts mad? There is no industry (or public) that can stand this kind of greed and abuse for to long. . .less by Henry on May 31 2010, 07:54 Find this comment inappropriate? Report it

STEALING Government is running out of money to steal so they have to find was of stealing from hard working people who do not go around destroying things and making a mokery of civilisation! by BART on May 31 2010, 08:12 Find this comment inappropriate? Report it

@ Henry Very well put and nothing short of terrifying. Surely, now that the honeymoon of 'liberation', massive looting of the family silver and abandoned wild, spending spree is coming to an end, - surely an equally dramatic implosion is imminent and . .more un-preventable. @ Bart,- exactly, after ploughing through the spoils of 'freedom', they are now asking:-'waars nog geld?'- and they sure ain't going to find 'nog geld' in the squatter camps or within the hoardes of toy-toying mindless masses. The new source will of course be the few remaining pillars of society and the economy.-the usual soft targets. And who has the time for all this stupid added admin. anyway. . .less by Voortrekker on May 31 2010, 09:21 Find this comment inappropriate? Report it

Just Another Stealth Tax SARS clearly has adopted a polcy of increasing revenue through stealth taxes so that it can still pretend to international investors that tax rates are reasonable. The new PAYE rules are another example, designed to increase penalties and interest icome . .more for SARS due to the near impossibility of compliance. . .less by Small Business Owner on May 31 2010, 09:22 Find this comment inappropriate? Report it

Car Prices In Australia my partner's car cost the equivalent of 38% of her annual salary. 25,000 against 65,000. Here the same car costs her more than 1 years salary. 195,000 against 185,000. Now you know why. By the way the Suzuki SX4 is . .more a directly imported vehicle in both countries . .less by Roger on May 31 2010, 09:45 Find this comment inappropriate? Report it

With this type of tax persecution of the South African motorist........ SARS is not benefiting or promoting a culture of disclosure but rather encouraging one of non-disclosure. And analogy. Is there any difference perhaps of a hi-jacker or robber pinting a gun at your head and wanting the contents of your vehicle or the . .more vehicle itself? No, no SARS. There will be a culture of tax compliance if taxes are fair and reasonable. But not in a climate of government kleptocracy. . .less by Collins on May 31 2010, 09:51 Find this comment inappropriate? Report it

New tax regime. High bloody time that these fringe benefits get taxed. Hopefully these changes will also apply to subsidized vehicles which form part of a civil servants pay package, or will it again be restricted to taxing non-ANC members? by Mpofu on May 31 2010, 10:09 Find this comment inappropriate? Report it

How much more can the loyal old tax payer still absorb.....? The only thing wrong with this article is the heading. It should have been "The death of the salaried employee". by Gabriel on May 31 2010, 10:48 Find this comment inappropriate? Report it

Pix is the same as the Aston Martin I ordered cant wait to get my hands on it by DB9 on May 31 2010, 12:14 Find this comment inappropriate? Report it

COMPANY CARS ARE FINALLY DEAD Doing it this way SARS is going to tax your benefit out the door within 26 to 28 months. I have mixed feelings about this, but it will most definitely have a negative influence on the retention of good senior personnel in general. However, one must keep . .more in mind that the majority will never drive cars and that it is most probably the Union tail waging the ANC dog again. My view is that companies should now rather beef up their employees' share incentive schemes and let them buy their own cars out of those profits. This will work fine until SARS gets a bloody nose from the UNION bosses once again and then that benefit will also die. By that time the current cadres will have their pockets beautifully lined and then they can leave for distant shores and leave us with the mess. Horrible plan, but a plan nevertheless. . .less by AFRICAN WARRIOR on May 31 2010, 12:52 Find this comment inappropriate? Report it

Defintely not promoting ordinary citizen tax compliance. Think SARS should rather tax their cadres entertainment allowances and hotel accommodation allowances and overseas travel. Does mean government ministers also pay this tax on their bling company cars? by Hein on May 31 2010, 13:50 Find this comment inappropriate? Report it

Now I understand why cars so expensive here I always thought we were being ripped by dealers here (we pay more for cars than any of the 20 countries I've been to). Turns out its just theft from government, so makes more sense now. by Dre on May 31 2010, 14:56 Find this comment inappropriate? Report it

SARS I think they support the Chinese and Korean car industry... by Bluegerry on May 31 2010, 22:37 Find this comment inappropriate? Report it

shrshsehse our website: now buyy.COM BEST QUALITY GUARANTEE!! SAFTY & HONESTY GUARANTEE!! FAST & PROMPT DELIVERY GUARANTEE!! Packing: All the products are packed with original boxes and tags also retro cards/ code numder A ir jo . .more rdan (1-24) sh oes ($33) Ha ndba gs(Coach,ed hardy,lv,d&g) ($35) Bik ini (Ed har dy,polo) ($25) . .less by sfrhsdh on June 01 2010, 02:30 Find this comment inappropriate? Report it

Consequences could be bigger than anticipated Good bye SA motor industry and job creation....... We not going to be able to afford a car at this rate. Hope the cabinet are paying 4% a month on all their bling R1million plus cars too!!! This also creates problems for businesses where staff . .more travel a lot, not worth while travelling for business as it makes you poorer after you take the tax off. Increasing tax collections to pay for government wastage, mismanagement and corruption is the goal, this is really sad state. The death of the tax payer = death of SA economy. . .less by Robbin Hood on June 01 2010, 03:30 Find this comment inappropriate? Report it

Stop Complaining Stop moaning and pay the "Keiser" what is owned to him... SARS must also investigate all "self-epmloyed" people. They are getting awsy with murder. I know of a few people who earn more the R1m per annum but still only pay less than R20k tax a . .more year! . .less by The Oracle on June 01 2010, 13:04 Find this comment inappropriate? Report it

Will the government .... extend the emissions tax to SAA as well? .... and also to Transnet's many hundreds of diesel locomotives? I smell unfair practises which could be tested in a court. by BJD on June 01 2010, 14:57 Find this comment inappropriate? Report it

Fringe benefit on company car Hi Mom, Not sure exactly how this will affect you from a monthly cash flow perspective. Just keep the article on file. by brendamichau@gmail.com on June 22 2010, 10:21 Find this comment inappropriate? Report it

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