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Posted by on Jan 17, 2012 in Tax | 0 comments

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.

 

Recommendations:

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%.