There can be tax implications if you lease moveable property such as cars,
as you`ll see in your tax return.
Part 14.4 of the tax return requires you to indicate whether or not a lease
on moveable property that you had, has expired. You need to indicate as
well whether the lease expenses you incurred were deducted from your income.
For our purposes, you need to look at the reasons why you leased assets
within each of the following categories - employment, investment, trust
activity or business.
The lease expense that you incur to enable you to generate investment
income, or to generate income from the trust or for your business will
clearly be deductible.
But I need to highlight a very obscure tax issue in relation to your
employment income affected by leases. As mentioned before, one of the three
ways to deduct expenses from your travel allowance is by using the tables
provided by the SA Revenue Service (SARS). If you do not own the car but
lease it in your own name, the lease expenses you incur on the car used for
employment purposes are deductible from the travel allowance your employer
pays you.
What if that lease expires and the car company sells you the car or allows
you to use the car at very generous rental rates? This is where tax issues
kick in, because you would have deducted the rental against income from
employment.
If you buy that car, it is obvious that you will obtain some discount on
the price you would have paid direct from the motor dealer (the market
value). The difference between that market value and what you paid the car
company to buy the car, is included in your taxable income on assessment.
However, that difference cannot be higher than the total amount you have
deducted from your travel allowance. If you decide to continue renting the
car at a cheaper rate, SARS will deem you to have bought that car - even if
you have actually not bought it.
In this case, you will be taxed on the cost of the car to the car company,
less 20 percent of that cost for every year that the car has been rented
out to you. Once you have been taxed in this manner, if you subsequently
buy the car, you will incur no more tax.
The example that I have presented works well for employment income but if
you leased assets for your business or other purposes, the same principles
apply although under a different income category. For example, you could
have leased furniture in your business from which you generate revenue and
that has nothing to do with travel allowances.
You will be aware that part 14 is a simple ``yes`` and ``no`` part of the tax
return - probably the simplest to just tick. But for the past month I have
been trying to put you in the picture as to why the Receiver asks those
questions.
This is important for you because when you put together a plan
of your financial affairs, you should also consider these things as they
are not obvious from the return.