EMPLOYEES’ TAX

2444. Company cars

SEPTEMBER 2015 – ISSUE 192

With the continued review of tax legislation, whether prompted by the Davis Tax Committee’s mandate or simply by a need to correct anomalies in current drafting, more and more tax changes seem unavoidable. One such change was introduced from 1 March 2015 to eliminate the inequities and anomalies in determining the taxable benefit arising from an employee’s right to use a company car.

Employees who are required to travel for business purposes and make use of a company car are subject to fringe benefit tax of 3.25% (if there is a maintenance plan in place) or 3.5% (with no maintenance plan) of the ‘determined value’ of the company car.

The changes introduced on 1 March, will only affect employees using company cars ‘acquired’ after 1 March 2015, i.e. the calculation of the taxable benefit for existing company cars will not be affected by the proposed change.

Company cars acquired before 1 March 2015
The ‘determined value’ of company cars acquired prior to 1 March 2015, is defined as:

For employees of new and used car dealers or employees in the motor vehicle rental industry, SARS accepted that the ‘determined value’ of the company car was equal to the average cost of all stock in trade or rental vehicles on hand at the end of the employer’s preceding year of assessment.

Furthermore, in the past, the determined value of motor manufacturers’ company cars was equal to the cost of manufacture of a car. Currently however, these cars’ determined value is equal to the market value, or ‘Dealer Billing Price’ of the car at the time the employer first obtained the right to use it.

Company cars acquired after 1 March 2015
From the above it is clear that the ‘determined value’ will differ greatly depending on the means of acquisition of the car or the nature of the employer’s business. In an effort to align the determined value for all employers and employees, the definition of determined value will be the actual retail market value of the car, including VAT but excluding finance charges and interest, regardless of the type of acquisition or the nature of the employer’s business.

The impact of a company car on the employee’s tax
If the vehicle was acquired under an operating lease (as defined) before 1 March 2015, the monthly taxable value used to determine the employee’s taxable benefit, is equal to the employer’s actual cost incurred under that operating lease and the cost of fuel in respect of that vehicle.

For vehicles acquired or financed after 1 March, the employee will be taxed on the new deemed value, i.e. retail market value including VAT but excluding finance charges and interest less any consideration paid by the employee towards the cost of the vehicle.

80% of the taxable benefit will be subject to monthly PAYE but the percentage may be reduced to 20% if the employer is satisfied that at least 80% of the use of the company car will be for business purposes.

On submission of the employee’s personal tax return he/she will be permitted to claim as a tax deduction an amount based on his/her proven business kilometres. SARS will reduce the value placed on the private use of the car by the proven business kilometres, provided it is substantiated by an accurate and detailed logbook of business kilometres travelled.

On 28 April 2015, National Treasury published the Regulations dealing with the determination of the ‘retail market value’of the right of use of a motor vehicle fringe benefit.

A taxable fringe benefit arises where an employee is granted the right to use a motor vehicle, owned by his employer, for private use. Travelling between the employee's residence and place of work is included in private use. The ‘determined value’ of a motor vehicle is ordinarily used to calculate the value of the private use.

The retail market value must be used to determine the fringe benefit for vehicles acquired by an employer on or after 1 March 2015. Where the employer did not acquire the vehicle, for example, if the employer is a vehicle manufacturer, the Regulations apply to vehicles manufactured on or after 1 March 2015. If the employer holds the vehicle under a lease, the Regulations apply where the right of use was obtained by the employer on or after 1 March 2015. The Regulations do not apply to vehicles where the use had already been granted prior to
1 March 2015.

Prior to the amendments, the cost of the vehicle to the employer or the ‘market value’ was used to determine the benefit in a number of cases. This discriminated in favour of employees of motor vehicle manufacturers when compared to other employees. The ‘retail market value’ stipulated by the Regulations must now be used in all cases.

In terms of the Regulations, the retail market value of motor vehicles manufactured, obtained or acquired or the right of use of any motor vehicle obtained by the employer is determined as follows:

 

 

Years of Assessment starting on or after 1 March

2015 (pre 1 March 2016)

2016  (pre 1 March 2017)

2017 (pre 1 March 2018)

2018

Motor vehicle manufacturers or importers

New or demonstration motor vehicles

Dealer billing price (excl. VAT) less 10%

Dealer billing price (excl. VAT) less 5%

Dealer billing price (excl. VAT)

Dealer billing price (incl. VAT)

Pre-owned motor vehicles

Cost to employer to acquire motor vehicle (excl. finance charge, interest or VAT payable by employer in respect of the employer's acquisition), or where the motor vehicle is acquired at no cost to employer, the market value and costs of repairs incurred to grant employee the right of use.

Cost to employer to acquire motor vehicle (excl. finance charge or interest payable by the employer in respect of employer's acquisition), or where the motor vehicle is acquired at no cost to the employer, the market value thereof, and costs of repairs incurred to grant employee the  right use incl. VAT).

Motor vehicle dealers or rental companies

New or demonstration motor vehicles

Dealer billing price (excl. VAT).                                                        

An amount equal to dealer billing price (incl. VAT).                                                                                                                                                

Pre-owned motor vehicles

Cost to employer to acquire motor vehicle (excl. finance charge, interest or VAT payable by employer in respect of the employer's acquisition), or where the motor vehicle is acquired at no cost to the employer, the market value thereof, and costs of repairs incurred  to grant an employee the right of use.

Cost to employer to acquire motor vehicle (excl. finance charge, interest or VAT payable by employer in respect of the employer's acquisition), or where the motor vehicle is acquired at no cost to the employer, the market value thereof, and costs of repairs incurred  to grant an employee the right of use.

Cases other than motor vehicle manufacturers, importers, dealers or rental companies

 

Price of acquisition of motor vehicle paid by employer (incl. VAT)

In terms of the Regulations, ‘dealer billing price’ means ‘the recommended selling price of a motor vehicle as determined by the manufacturer thereof in the Republic or importer thereof in respect of the selling of motor vehicles to motor vehicle dealers and motor vehicle rental companies’.

Grant Thornton and BDO
ITA: Seventh Schedule
Regulation No. R362 Government Gazette 38744 of 28 April 2015