Introduction:

Where a company vehicle is provided by an employer to an employee, the employee must be taxed on a monthly basis on the use of the company vehicle, as it is deemed to be a fringe benefit for private purpose.

This applies even if the vehicle is only used for commuting between the home of the employee and his or her place of employment, as this is deemed to be private travel by the South African Revenue Service (SARS).

Paragraphs 2(b) and 7 of the Seventh Schedule of the Income Tax Act states that “A taxable benefit shall be deemed to have been granted where an employee is granted the right of use of any motor vehicle for private or domestic purposes.”

Calculation of the value of the taxable fringe benefit is discussed further below on the assumption that the vehicle is owned by the employer and will for the very first time be brought into use by the employee, to whom the vehicle is allocated.

The value to be placed on benefit is calculated as follows:

The determined value of the vehicle is the starting point of the calculation. The determined value of vehicles purchased before 1 March 2015 is the cash cost including VAT, but excluding finance charges. The determined value of vehicles purchased on or after 1 March 2015 is the retail market value.

The private use value for employer-provided vehicles will be 3.5% per month of the vehicle’s determined value. A slightly lower rate of 3.25% may be used to determine the vehicle’s determined value, where a maintenance plan was included within the purchase price at the time of purchase.

The taxable benefit will be the value of the private use of the vehicle exceeding any consideration given by the employee to the employer for the use of the vehicle during such period, other than a consideration in respect of the cost of the licence, insurance, maintenance or fuel.

The value of a taxable benefit shall be calculated on a monthly basis or each part of a month during which the employee was entitled to the use of the vehicle for private purposes (including travel between the employee’s place of residence and his or her place of employment or any other travelling done for his or her private or domestic purposes).

Example:

An employee has the use of vehicle with a determined value of R200 000 for private purposes as from 1 October 2017. There is no maintenance plan on the vehicle. The fringe benefit that must be included on the monthly payslip of the relevant employee is R7 000 (R200 000 x 3.5%).

Note: The employer has to calculate the employees’ tax on 80% of the amount of the fringe benefit as calculated in terms of paragraph 7 of the Seventh Schedule (paragraph (cB) of the definition of “remuneration”)
• R7 000 x 80% = R5 600 next to code 3802 on the monthly payslip.

Note: If the employer is satisfied that at least 80% of the use of the motor vehicle for a year of assessment will be for business purposes (daily detailed log sheets must be on record at the employer to proof that the employer applied his mind based on detailed information) then the employees’ tax need only be based on 20% of the fringe benefit.
• R7 000 x 20% = R1 400 next to code 3802 on the monthly payslip.

No value:

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 are such that he or she is regularly required to use the vehicle for the performance of such duties outside his or her normal hours of work and he or she is not permitted to use such vehicle for private purposes other than:
• Travelling between his or her place of residence and place of work, or
• Private use which is infrequent or is merely incidental to its business use.

If you have any enquiries, please contact Petri Westraadt at pwestraadt@fhbc.co.za

Source Reference:
SARS guide for employers in respect of fringe benefits (2018 tax year)