Buying a car through business

[crudler]

Calling on help from the more Tax Savvy

I need to buy a bigger car for my family (just had twins).
So time to sell off the smaller hatch for something bigger - most likely 2nd hand. I am a pert owner / director of my own company (its a pty).
Is there any tax benefit in my business buying it for me?

i.e. if repayments are 5k, just drop my basic by 5k and let the business own the car. Business gets the vat back, and its an expense. I know that I will pay fringe benefit tax (not sure how much tho)

Am I on to something or is this a bad idea.
Also in theory my business looks better on paper than I do so rates should be lower

 

[roddyp]

Bad idea.

1.The business cannot claim Vat back on a car. There are some exceptions to this, but SARS are wise to this so you will not be able to claim. (despite being VAT registered etc)
2. If you drive a company car, you will be charged 2.5% fringe benefit per month (of car value) for its use.
3. You will lose your tax benefit of travel claim.

My advice, stay away from this.

 

[Purply]

Afaik the car will fall under an expense, so the business will be taxed less, that is pretty much the only benefit.

Everything roddyp mentioned is correct.

 

[crudler]

wow.
so for a 200k car, company gets an expense of 4k per month (pretending thats the finance) at 28% tax rate means the business brings down tax liability by R1120pm
Me as the employee pays fringe benefit of 5k, at a marginal rate of 30% I pay R1500
Zero vat implications

So since I am the business (well actually I am 50% of the business, but ignore that for now)
So to save R1120, I must spend R1500

So net effect I lose R380 plus gain a bunch of admin headache
wow, totally not worth it. not even including the lost tax sheild from my travel claims

Am I understanding this correct?

 

[roddyp]

almost. You can't actually claim the expense of the car as it is a capital item. Instead, you can claim the depreciation as an expense at 20% per year.

So, you could claim, using your example, 40K per year, which works out to R3333.33 per month. (reducing liability by 933.99).

When it comes to dealing with SARS, just remember that they have thought of almost everything and then found ways to stop it. The vehicle thing is an obvious one, so they pretty much have it tied up.

Instead, what i suggest is chat to a tax practitioner about creating a business that is just you and then using this business as a vehicle to invoice the main company each month for your fees (instead of earning a salary). This will then allow you to claim all sorts of things and can reduce your tax significantly. (i.e. instead of a travel allowance, change for travel at the AA rates. Claim electricity and rental if you work from home, business lunches, computer expenses, cleaning etc etc)

I have a friend (also a CA) who manages to pay about 10% to SARS in total using the system above (all legitimate and above board). The admin though is a complete headache and he gets heavily audited every year by SARS but as he is following the letter of the law there is nothing they can do.

Find a good tax practitioner who understands this and make sure its all legit. Last thing you want is SARS trouble!

 

[crudler]

thanks for all the suggestions!

 

[xrapidx]

necro bump.

So I am now in the same boat as OP and stumbled on this thread, glad I haven't pulled the trigger yet... will need to find someone to speak to first

Out of interest, would the same apply if the company leased the vehicle instead of purchasing? (re: fringe benefit for driving the vehicle)