You have been given a new job or, for some reason, your salary has to be redetermined by your employer. Let's assume your package (before contributions by your company and yourself to your pension, medical aid or any other benefit) is R50 000 annually.
In addition to this basic salary you have to choose between either a company car or a travel allowance. Let's assume that your decision will be influenced only by the tax you save. In real life tax is one of many factors to consider when making a choice between between these two.
Your employer will provide a car worth R60 100 (including VAT) or if you prefer a travel allowance, you will get an extra R2 000 a month which equates to R24 000 a year. To keep it simple let's make the following assumptions:
If you opt for a travel allowance
· Your work requires you to travel extensively and in this year you
travelled 35 800 business and 12 000 private kilometres;
* You are not prepared to keep a record of business kilometres;
* You had the car for the full year; and
* You bought a car for R60 100 (including VAT).
If you opt for the company car
* Your employer maintains the car and also pays for the fuel so the deductions in table two alongside do not apply; and
* You did not contribute anything to the cost of the car bought by your employer.
Your tax calculation for the year will look as follows:
Please scroll down.
Travel Allowance
Company Car
Basic salary
50 000
50 0000
Travel allowance
24 000
Company car
-
129 821
74 000
62 982
Less: travel expenses
(21 252)
2
Taxable income
52 748
62 982
Tax to be paid
7 579
11 003
After tax cash
45 169
38 997
Note 1: R60 100 x 1.8 percent a month x 12 months. (In other words, your employer will include 1.8 percent of the value of the car in your monthly pay-slip.)
Note 2: Because you did not keep a logbook, you can't claim more than R33 873 (See table one, column two, row nine) divided by 47 800 (total kilometres travelled - both private and business) gives a fixed cost rate of 70.86 cents. Then add 70.86 cents plus 25.9 cents plus 21.3 cents (both on row nine also) to get a total of 118.06 cents a kilometre. Because you did not keep a logbook you cannot claim more than 18 000 kilometres for business even if you travelled 35 800 in this case.
Therefore 18 000 multiplied by 118.06 cents is R21 252.
This is a simplistic example showing you just how many variations could be involved.
From the above, a company car looks like a better option because it gives more income. But the travel allowance, in fact, gives more cash in the pocket because it's cash to you whereas the company car is a "benefit".
From the R62 982 you have to deduct R12 982 because it is not cash in your pocket.
This example illustrates the tax issues. Changing to the assumptions, can easily make the company car a far better option.
Please scroll down.
TABLE 1 (TRAVEL ALLOWANCE)
TABLE 2 (COMPANY CAR)
Row
column 1
column 2
column 3
column 4
1
Value of Vehicle (including VAT)
Fixed Costs (Rands a year)
Fuel Costs (cents for every km)
Maintenance Costs (cents for every km)
2
0 -
30 000
16 916
23.1
17.1
If you
pay for the maintenance of the car you will deduct R120 a month from the
monthly benefit included on your pay-slip
3
30 001 -
35 000
18 984
23.5
17.3
If you pay for the
fuel of the car you will deduct R85 monthly from the monthly benefit included
on your pay-slip
4
35 001 -
40 000
21 051
23.8
17.8
5
40 001 -
45 000
23 116
24.3
18.5
6
45 001 -
50 000
25 197
24.8
19.2
7
50 001 -
55 000
27 670
25.3
19.9
8
55 001 -
60 000
29 778
25.5
20.6
9
60 001 -
70 000
33 873
25.9
21.3
Notes on Table 1
1. This is a shortened version of the actual table supplied by the Receiver.
2. If your business kilometres in any year do not exceed 8 000 in total, the travel allowance shown on your pay-slip should be tax free if the rate at which the employer pays you that travel allowance is less than R1.53 a kilometre. Remember there are two main types of allowances (re-imbursive and non-re-imbursive). This point refers to the re-imbursive allowance only. Fifty percent of the non-reimbursive allowance is taxed on your monthly pay-slip.
3. If you used the car for less than 12 months, the fixed costs on the table have to be apportioned for the period you used the car, for example if you used the car for 10 months you simply multiply the relevant fixed cost by 10 divided by 12 months.
4. Tip: it is advisable to buy a car worth R35 001 rather than R35 000 because that extra R1 pushes the costs you can claim into a higher bracket.