Dear Reader,

You probably know by now that from 1 March 2011, the monthly income tax fringe benefit on the private use of a company car has been increased from 2,5% of the Vat-exclusive price to 3, 5% of the Vat-inclusive price.

Let’s look at a practical example:

Example

Motorcar costing R228 000 (incl. R28 000 Vat)

How to calculate the Fringe Benefit?

Old Method

New method

So, the increased fringe benefit tax payable on a company car is an extra R1 192 per month!

That’s an added saving of R14 304.00 per year!

How does this affect Vat?

In terms of Section 18(3) of the Vat Act, a vendor must also declare output tax on the private use of a company car given to a director or employee.

The value of the fringe benefit is calculated at 0,3% a month on the "determined value" of a "motor car" and 0, 6% a month on any other motor vehicle.

Regulation 2835 published on 22 November 1991 provides that the "determined value" of a motor car shall be the original cost thereof if purchased, or the cash value if rented - excluding finance charges and Vat.

Good news!

This regulation has not been withdrawn and it follows that the original method of calculating the value of such benefit hasn’t been changed as a result of the new method applicable to fringe benefits from 1 March 2011 for purposes of the Income Tax Act.

How can you put this into practise? Let’s look at another example:

Motorcar costing R228 000 (incl. Vat)

Panel van costing R228 000 (incl. Vat)

Got that? Good!

Two important Vat changes

The talk of the town is that the Vat Act will have two major changes happening this year. The first change will be to grant a vendor exemption of R500 on imported donated goods and servies  and the second change will prohibit a vendor to change his/her cut-off dates regarding tax periods more than once a year.

There’s no exact date on when this will happen, so let’s take a quick look at each.

Exemption from Customs Vat on imported goods and services

At present, goods not subject to Customs duty may be imported free of Vat, if the value thereof doesn’t exceed R500.  In addition, books, periodicals and newspapers up to the value of R100 are exempt from Vat on importation.

However, if you download a film, music or other material over the internet, you are required to declare and pay to SARS the Vat on the imported service.

The Vat Act will be amended this year to grant an exemption of R500 to the importation of goods and services. So keep reading the Tax Bulletin, so that you know when this will happen!

Tax period cut-off dates

Vendors may decide to close their tax periods up to 10 days before or 10 days after the month end.

Some vendors have been chopping and changing their closing dates to delay declaring output tax, or increasing their input tax claims.

To prevent misuse of this concession, the Vat Act will be amended to prohibit a vendor changing the cut-off date more than once a year.

Until next month,

Peter Frank
Editor in Chief – Practical Vat Loose Leaf

P.S. How to get your Vat documentation right –first time, every time.
Incorrect documentation constitutes the majority of disputes with SARS. You can avoid this unpleasant situation.

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