Changes to company car fringe benefits could hurt your pocket

Proposed changes to company car fringe benefits will come into force in March next year.

This will have serious implications for your take-home pay if you are an employee or executive with company car benefits.

Once the change in the company car tax structure is implemented, employees will be forced to make out-of-pocket payments to make up for disparities.

The 1% difference (from the current 2,5% to 3,5%) may seem small—even negligible—but that’s not how it will feel when it hits your pocket.

To put the new benefit structure in context, let’s use a R400 000 German car as an example. Under the current system, the fringe benefit is R10 000 per month and at the top marginal rate that amounts to R4 000 tax per month.

In the past, the rate was reduced when the employee incurred fuel and maintenance costs.

Under the new system—as a starting point the assumption is that all mileage is presumed to be private—the fringe benefit increases to R14 000 per month and at the top marginal rate that amounts to R4 480 per month (under the new system 80% of the fringe benefit is subject to PAYE on a monthly basis).

So you will end up forking out R480 per month or R5 760 per annum.

Ewald Müller, senior executive at the South African Institute of Chartered Accountants (SAICA), points out that employees will be able to claim privately.

“The employee may claim business-related travel supported by a logbook and certain private costs against this benefit at year-end in his or her annual tax return,” he says.

Not that the taxpayer will relish this prospect—but at least some relief is forthcoming.

Under the present dispensation, the tax benefit is deemed at the rate of 2,5% of the determined value per month; from March next year, the 2,5% level increased to 3,5% of the determined value will also include VAT, which was previously excluded.

Read more news, blogs, tips and Q&As in our href=“//www.mg.co.za/section/smart-money” rel=“external”>Smart
Money section. Post questions on the site for independent and
researched information

Client Media Releases

Times Higher Education ranks NWU 5th in SA
UKZN confers honorary doctorate on former public protector
ContinuitySA's Willem Olivier scoops BCI award