Company cars and car allowances

The future tax situation for company cars and car allowances has been very much in the news lately. One thing is for sure – there are some major changes heading your way if you have a company car or an allowance. The changes are heading for government approval at present after a lot of discussion with the motor industry and other stake holders.

There are some real surprises coming for 2011 in the new proposals.
1. Company cars – From 2.5% on the purchase price less VAT at your marginal tax rate – to 3.5% on price plus VAT with your PAYE deduction set at 80% of this amount.
2. This will be applicable to the executive whose business usage is less than 20% of the total annual kilometers.
3. If your business kilometers exceed more than 20% of total annual kilometers – you will be able to claim the proportion of business use.
4. If you drive a lot of business kilometers e.g. a representative, and your private usage is less than 20% of total annual kilometers, your PAYE deduction will only be 20%. This will require a pre-nomination by the company or driver. Certain quite strict penalties will be applied if this tax rate is misused.
5. If a maintenance plan is included – your employer can reduce the taxable benefit (para. 1 above) by 3.25%. No mention is made of service plans.
6. A logbook will needed by ALL drivers next year.
7. Based on a R300 000 car, as an example, the new taxes will increase your PAYE from about R2 600 a month to R8 400 a month (Depending on personal circumstances)
8. Car allowances – there are no current changes but the c/km rates claimable for capital, fuel and maintenance could still be changed to increase PAYE.
9. Some general points about car allowances are given below to help you optimize your PAYE situation

1. The higher the value of the car, the more allowance can be claimed in terms of the tax table. Remember that the pricing gaps are now R40 000 apart.
2. The more kilometers driven, also results in a higher allowance claimable
3. The allowance given/ taken should “fit” the car you buy.
4. Too high an allowance results in paying more perks tax.
5. The upfront tax on 80% of the allowance is relatively high and can affect a person’s cash flow
6. If insurance is included in your allowance, it increases the perks tax you pay.
7. The financing method you use to purchase your car has no effect on your PAYE. It should be optimised. For example, build in a residual value to reduce your monthly repayments.

Give me a call on 011 7829211 if you need to discuss these matters.