New company car legislation results in increased taxation and is an administration nightmare A
mended legislation has resulted in an increase in the percentage rate used to calculate the monthly fringe benefit for all company cars and a radical change in the taxation of company cars from 1st March 2011, making the keeping of a log book essential, if employees are to see any tax benefit. This is according to Ron Warren, Executive Chairman of payroll software company, NuQ, who says that new tax regulations for company cars which fall under the recently legislated Taxation Laws Amendment Act, 2010 and the Taxation Laws Second Amendment Act, 2010, represent administration headaches for businesses. In the 2011 tax year the deemed business kilometres travelled concession for travel allowances (those exceeding 18 000 but not exceeding 32 000 kilometres) was repealed, and taxpayers seeking to claim expenses against a travel allowance had to maintain travel log books showing actual business use. Similar changes are now required for the employer company car fringe benefit and Warren says that both sets of rules must roughly reach the same tax outcome so as to prevent ‘arbitrage’, according to the explanatory memorandum on the Acts. “In the past, company cars were viewed as being beneficial because employees did not have to record the kilometres they travelled for business,” he says.“The new legislation changes this making them a more troublesome fringe benefit.Tax deductions allowed on both the travel allowance and the
People Dynamics April 2011
company car will now be calculated in the same way, and employees have to keep a log book to show their business travel and their fringe benefit will be adjusted in line with what the log book says.” He explains that the business kilometres actually travelled as evidenced by a log book are now valued in exactly the same way for a company car as they are for a travel allowance, using the same cost table published by the Minister. Under the new legislation, Warren says that another major change is that the percentage rate used to calculate the monthly fringe benefit for all company cars (including the first) has been raised to 3,5% per month of the vehicle’s determined value (instead of 2,5% for the first car in terms of the previous legislation). This rate is reduced to 3,25% per month if a maintenance plan was purchased at the same time as the car was purchased. He says that under the amended law, the cost of a maintenance plan,VAT and any other taxes, such as the carbon emissions tax (which were excluded in the past ) will have to be included in the “determined value” of the car on which the 3,5% or 3,25% is calculated. Under the new legislation, Warren says that SARS has also changed the percentage of the company car fringe benefit that is to be subjected to PAYE. Now, 80% of the benefit (of the full fixed 3,5% or 3,25% determined value of the vehicle) will be taxed per month, on the assumption that the employee will submit a log book at the end of the year. This also assumes that the
Published on Jun 14, 2012
Published on Jun 14, 2012
Dynamics Labour relations and labour law Journal of the South African Institute of People Management www.ipm.co.za April 2011 • Vol 29 No. 4...