2012 Tax Calculations
Please take careful notice of the below for 2012 tax calculations.
Employers need to consider the following as from 1 March 2011:
MONTHLY FRINGE BENEFITS
The monthly fringe benefit will be calculated at a rate of 3.5% of the
determined value of the car less any consideration paid by the employee in
respect of the use of the car. Importantly however, any consideration paid
by the employee in respect of the cost of license, insurance, maintenance or
fuel of the car may not be deducted when calculating the determined value
for fringe benefit purposes. This is due to the fact that separate tax relief (by
way of a reduction in the annual fringe benefit value) will be granted to the
employee on assessment where he has borne these costs in full.
Where the car is subject to a maintenance plan at the time when the
employer acquires it, the monthly fringe benefit will be calculated at a
reduced rate of 3.25% of the determined value of the car.
The determined value of the vehicle includes VAT which means that the
monthly fringe benefit (and the employer’s skills development levies and
potentially UIF contributions) will automatically be a higher amount.
Only 80% of the fringe benefit will be included in remuneration and
subject to employees’ tax. This means that, unless special relief applies, the
fringe benefit is calculated at an effective rate of 2.8% of the determined
value of a car that is not subject to a maintenance plan or 2.6% of the
determined value of a car that is.
The good news is that special relief applies where the employer is satisfied
that at least 80% of the use of company car during the tax year will be for
business purposes. In this case, only 20% of the monthly fringe benefit is
subject to PAYE. This is indeed an encouraging change for those employees
who use their company cars as so-called “tool-of-trade” vehicles, since
in the past these employees only obtained limited tax relief and only on
assessment. They will now obtain this relief on a monthly basis which
should increase their after-tax cash flows.
Note too that this same rule applies to car allowances granted to
employees in respect of their personal vehicle and, accordingly, where an
employee uses his own vehicle at least 80% for business purposes, only
20% of the car allowance granted will be subject to monthly PAYE.
In addition to the above relief granted for the business use of the car,
further tax relief will also be granted on assessment where the employee
has borne the full cost of fuel, maintenance, license fees or insurance
and kept accurate records of his private kilometers and total kilometers
travelled in the car. This tax relief will be granted by way of a reduction in
the annual fringe benefit value. With the exception of fuel, the amount
by which the fringe benefit will be reduced will be calculated by applying
the ratio of private kilometers over the total kilometers travelled in the car
against the actual costs incurred. The fringe benefit reduction for fuel will
be based on the private kilometers travelled in the car multiplied by the
rate per kilometer for fuel as fixed by the Minister in the Gazette.
Employees must keep a log book to avoid a tax liability on assessment!
Remember, only 80% of the fringe benefit is subject to monthly PAYE and thus at
the end of the tax year, the remaining 20% will be subject to income tax to the
extent that the employee cannot justify any business use of the company car.
Clearly, employees who do not use their company car for business purposes
will not benefit from this tax relief. For these employees, the increase in the
fringe benefit rate from 2.5% to 3.5%, together with the fact that it is applied
to a higher determined value (i.e. inclusive of VAT), will result in a higher fringe
benefit value (such employees will effectively be paying tax on 42% of the
value of the car every year).
Employees who use their company car extensively for business purposes
should assess whether they can reduce the monthly fringe benefit inclusion
rate to 20%.