Vehicle allowances: A dummies’ guide

It will come as no surprise that Minister of Finance Trevor Manuel has targeted car allowances in this Budget.

After numerous hints last year from the minister and South African Revenue Service Commissioner Pravin Gordhan, Manuel has taken action to reduce the abuse of car travel allowance, which he identified as ”unwarranted benefits for higher-income earners”.

Firstly, he has capped the value of vehicles at R360 000. This means that people who have vehicles valued at more than R360 000 will see a significant rise in their taxable income when the regulation comes into effect from March 1.

In an attempt to force people to use accurate log books rather than rely on the formula of assuming business travel, the deemed private kilometres will be increased from 14 000km to 16 000km in the 2006/07 tax year and then increased to 18 000km in the 2007/08 tax year.

If, for example, you normally travel 20 000km a year and your car is valued at R250 000, you would receive a tax deduction as part of your car allowance of R35 323 a year as 6 000km would be deemed as business travel whether they were used for business or personal travel.

However, in the next tax year your tax deduction will have fallen to R13 991 as your business travel will be deemed to be only 4 000km, irrespective of how many business kilometres you have actually travelled.

By the 2007/08 tax year the tax deduction will have fallen to just more than R1 000.

”It is clear that the receiver ultimately wants to phase out the current system whereby business travel is assumed once a certain number of private kilometres have been travelled,” says André van Staden of financial solutions company Exord.

To maintain a log book you need to keep a monthly record of your business travel.

Van Staden says by using an accurate log you can claim your full business travel off your total mileage that year, rather than basing claims on assumed private or business usage.

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Maya Fisher French
Guest Author

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