Dear Reader,

In this Bulletin:

• How did SARS manage this?
• Reduce your company car tax bill in 4 steps
• SARS doesn’t care how long you’ve been driving it
• Get the company to pay for your new car. But remember the rules…
• Why you need to do the math before you make a decision

Bad news: SARS is in the process of amending the tax legislation around company cars. It has increased the amount of tax you’ll pay on this perk, by a whopping 60 %!

How did SARS manage this?

In a nutshell, by increasing the monthly tax you’ll pay on the use of your company car, from 2.5% to 4% of the cost of the car.

Unfortunately this isn’t the only bad news. SARS also changed the calculation of the “cost” of the vehicle on which the monthly tax is charged. The “cost” is the total amount paid for the vehicle, excluding finance charges/interest, but INCLUDING Vat, and maintenance plan costs.

Before you ditch the company car forever, let me point out that there’s still a benefit to be gained if you start keeping a logbook. Let me explain…

Reduce your company car tax bill in 4 steps

The onus of proof is on you, to show SARS that you have used the car for business purposes. This is why the dreaded logbook is essential.

But with the use of a logbook, you can shrink your tax bill in these 4 steps:

1. Calculate your business kilometers
2. Divide this by the total kilometers travelled
3. Multiply this by the total amount that’s subject to tax (i.e. the 4% of the cost of the car).
4. To calculate the saving, take the amount calculated and multiply it with your incremental tax rate according to the tax tables.

Unfortunately there’s no other way to reduce the tax burden.

SARS doesn’t care how long you’ve been driving it

It doesn’t matter whether you’ve used the company car for one year, or five. SARS will always calculate the cost of the car the same way. But then, we all know that tax law isn’t very, erm, user-friendly.

Speaking of “user-friendly” tax aids, here’s something that should interest you:

Get the company to pay for your new car! But remember the rules…

Usually, companies give their staff the option of buying the company car they’ve been using, for a low price, after say, three years. But research has shown that the company’s lucky if it recovers even 52% of the vehicle’s original cost if it sells the car to you.

Take advantage of this! It makes sense for you to take good care of the company car you’ve been given, so that you can buy the car three years down the line. Instead of having a company car perk, simply ask the company for a travel allowance (here are some tips for that).

Just remember that in the conversion from a company car to a travel allowance, your company must incorporate all the costs associated with the car, and that includes the car’s loss in the value (i.e. the depreciation).

Why you need to do the math before you make a decision

It used to be fairly simple for me to advise my clients on the matter of the company car, versus a travel allowance. But SARS has really complicated things. These days, I find that I’m recommending to my clients that they actually sit and do the calculations for each scenario, before they make a decision.

That said, I believe there are only a few scenarios in which it’s better to scrap these perks altogether.

Just remember, the logbook is absolutely essential, and perhaps it’s worth the cost of investing in an electronic logbook. No logbook, no claim! Oh, and if you need to brush up on your company car knowledge, check out chapter C05, in your Practical Tax Loose Leaf

Until next time,

Prof Marius Maritz
Editor-in-Chief: Practical Tax Loose Leaf Service