Some employers have a policy of allowing you to choose between a company car and a car allowance while others offer only one option. If you are self-employed you receive neither, but you can claim a deduction for business travel.
A company car is owned by your employer but which you can use for business and private travel. You are taxed on a proportion of the value of the car each month. A travel allowance is paid for business travel, 40 percent of which is subject to employees' tax on a monthly basis.
According to Deloitte & Touche's Pay Less Tax 1997,"there are numerous permutations and variables to consider when trying to determine whether a travelling allowance or company car is more beneficial".
"The most important factors are the tax implications on the ultimate acquisition of the company car and the amounts of your business and private travel."
Among the pros and cons of each option, the authors suggest that a travelling allowance is more flexible than a company car, particularly if you want to own the vehicle eventually.
If you want to buy your company car at the end of the period set down for business use, you could be taxed at a rate which makes the purchase unattractive, particularly after you have been taxed on the use of the car.
The advantage of a company car is that your capital is not tied up in a vehicle as it is if you own a car and receive a travel allowance. You can rather put that money into an appreciating investment.
With a travelling allowance, if your business kilometres are low, you could end up with a substantial tax liability when your return is assessed. PAYE is withheld from 40 percent of the allowance so you will have a tax liability to the extent that your deduction for business travel is less than 60 percent of the allowance.
If you have a travel allowance but your business travel is less than 8 000 kilometres a year, instead of using a logbook or the gazetted tables of costs, you can use 130c a kilometre to determine the costs of your business travel.
COMPANY CAR
The table shows examples of the amount you will be taxed on each month from July 1 1997 if your employer has given you the use of a company car. The calculation is based on the "determined value" of your car, which usually means the original cost excluding VAT, finance charges and interest. The formula is "determined value" x 1,8 percent.
Determined valueTaxable value (1,8 percent
of vehicleof determined value a month)
R50 000R 900
R60 000R1 080
R70 000R1 260
R80 000R1 440
R90 000R1 620
R100 000R1 800
R110 000R1 980
R120 000R2 160
TRAVELLING ALLOWANCE
The table shows the costs you can claim for the values of cars shown if you receive a travelling allowance and have not kept a log book. If you kept a log book, you can claim actual costs but you might find the "deemed" amounts, as this is called, are preferable. If you have not kept a logbook, the first 14 000 kilometres you travelled a year are regarded as private usage. The rest is business travel, up to a maximum of 18 000 kilometres. The formula to calculate how much you are able to claim is: (fixed cost applicable divided by total kilometres travelled) + fuel cost c/km + maintenance cost c/km = total deemed cost/km. Multiply the total deemed cost/km figure by the kilometres you travelled for business (either actual kilometres, if you kept a logbook or deemed kilometres) to show the amount you can claim.
Value of vehicleFixed costFuel costMaintenance
Rcc
R50 00024 04220,718,6
R55 00025 84821,118,9
R60 00028 55721,519,4
R70 00032 17022,019,9
R80 00035 78222,620,4
R90 00039 39423,221,0
R100 00043 00723,821,6
R110 00046 61924,522,2
R120 00050 23225,322,8