How much tax can you pay on a company car?

By Chad Lückhoff

You've just landed that cool new position at the office, or maybe you're stepping into a new company, and all seems promising and rosy. A new office, a pay increase and best of all, a company car! Life is great... or is it?

Additional benefits come with additional responsibilities and as the old adage goes; nothing for nothing. Aside from the expectations of you doing your job, you will be required to pay taxes on the benefits you receive and a company car is one of them. While your employer may offer you a company car, here's what you should know about the tax associated with it.

There are many ways that your employer may come to be in possession of a company car for you to use; outright purchase, lease, trade agreement or in the case of vehicle manufacturers and car dealership, a “stock” item. All of these affect the way that you are taxed on the car you use.

SARS imposes a fringe benefits tax of 3.5% on vehicles without maintenance plans and a 3.25% fringe benefits tax on those with maintenance plans for vehicles used for business travel purposes. This is a percentage of the determined value of the car in question.

The determined value of the car is defined as follows:

The original cost of the car, excluding finance charges and interest, when purchased outright.

The cash value of the car if the car is on lease agreement or instalment sale.

The retail market value of the car when the employer came to obtain it (when not purchased outright or leased)

The market value of the car when the employer first acquired the car if not described in one of the scenarios above.

For new and used car dealerships or vehicle rental companies, SARS accepts the determined value to be that of the average cost of all the stock in hand at the end of the previous assessment year.

80% of the taxable benefit is subject to monthly PAYE but this can be reduced to 20% at your employer's discretion, provided they are satisfied that at least 80% of the company car use was for business purposes. It's important to note that travel to and from work does not count towards business use and this is considered private use. It's worth checking that you will be able to cover the 80% required before signing for a company car, especially in instances where you live a considerable distance from the office.

At the end of the tax year, you will be able to submit a return to claim back the tax paid over the course of your use and it is beneficial to provide a log book to prove that you used the vehicle for at least 80% business. Keep that logbook and don't try to cheat the personal use kilometres, as an audit will find you liable for the full amount.