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Car Allowance
- Thread starter Dolby
- Start date
OMB
Mountain Man
A Non Blonde
Senior Member
The 'true purpose' of a car allowance is to compensate you for the use of your vehicle for business purposes - it is however at times included to make the 'package' more attractive. (Structuring).
Business travelling will qualify as a travelling expenses against the allowance for tax purposes providing that a detailed log book(cannot stress this enough) has been kept.
The allowance is taxed 80% at source - i.e. 20% of the allowance is not subject to tax on a monthly basis. On tax assessment any unused portion will be subjected to tax.
If you are not utilising your vehicle for business purposes (home to work is deemed private travelling by the way) it may be a good idea to request the employer to fully tax the allowance monthly to avoid the 'due by you' shock on assessment.
The alternative, if you are money wise and disciplined enough, is to 'save' the tax portion on a monthly basis- thus earning interest (albeit minimal).
Business travelling will qualify as a travelling expenses against the allowance for tax purposes providing that a detailed log book(cannot stress this enough) has been kept.
The allowance is taxed 80% at source - i.e. 20% of the allowance is not subject to tax on a monthly basis. On tax assessment any unused portion will be subjected to tax.
If you are not utilising your vehicle for business purposes (home to work is deemed private travelling by the way) it may be a good idea to request the employer to fully tax the allowance monthly to avoid the 'due by you' shock on assessment.
The alternative, if you are money wise and disciplined enough, is to 'save' the tax portion on a monthly basis- thus earning interest (albeit minimal).
Stefanmuller
Expert Member
My take:
Its purpose is there for employees who will be using their own vehicle for business purposes, to get the allowed tax break for such business travel. Generally, it wont be added as a "on top of your salary" but rather as part of your salary. So it isn't anything extra but part of the package. If you actually have to travel a lot, your travel allowance would increase your salary, but likely only what your employer would think the travel expense would be. For example, person A and person B both work for the same company, doing exactly the same job. Both have to travel for work. The company has a 3 series BMW fleet car, which person A uses after he gets to work in his own car. Person A gets a R20k salary. Person B has to use his own car, so lets say the petrol he drives out that he has to pay himself, amounts to R1500 per month on average and lets say a generous wear and tear and maintenance of R500 to R1000. His salary might at most be R23k which is made up of R20k salary and R3k travel allowance. They might make it more attractive and give a R5k allowance and R18k salary. Point is its still R23k and only R3k more than the other guy and not enough to buy a new BMW.
If you use your own car for business, you are allowed a tax deduction for your business travel expenses, and only if you receive a car/travel allowance. The deduction is also limited to the travel allowance and effectively the reduction in tax is limited to the tax you paid on the travel allowance.
The correct term is travel allowance, rather than car allowance because its purpose and the way the deduction works is to cover your travelling costs such as petrol and maintenance and a little wear and tear. It is not meant to reimburse you the cost of a new car as well, as the latter would suggest. Companies often lure employees with say, a R8000 monthly travel allowance, and the employee would think he can now buy a R8000 monthly installment car. If you dont regularly travel actual business kms then the allowance is the same as normal salary and you probably will have to pay in a lot of tax at the end of the year.
Its purpose is there for employees who will be using their own vehicle for business purposes, to get the allowed tax break for such business travel. Generally, it wont be added as a "on top of your salary" but rather as part of your salary. So it isn't anything extra but part of the package. If you actually have to travel a lot, your travel allowance would increase your salary, but likely only what your employer would think the travel expense would be. For example, person A and person B both work for the same company, doing exactly the same job. Both have to travel for work. The company has a 3 series BMW fleet car, which person A uses after he gets to work in his own car. Person A gets a R20k salary. Person B has to use his own car, so lets say the petrol he drives out that he has to pay himself, amounts to R1500 per month on average and lets say a generous wear and tear and maintenance of R500 to R1000. His salary might at most be R23k which is made up of R20k salary and R3k travel allowance. They might make it more attractive and give a R5k allowance and R18k salary. Point is its still R23k and only R3k more than the other guy and not enough to buy a new BMW.
If you use your own car for business, you are allowed a tax deduction for your business travel expenses, and only if you receive a car/travel allowance. The deduction is also limited to the travel allowance and effectively the reduction in tax is limited to the tax you paid on the travel allowance.
The correct term is travel allowance, rather than car allowance because its purpose and the way the deduction works is to cover your travelling costs such as petrol and maintenance and a little wear and tear. It is not meant to reimburse you the cost of a new car as well, as the latter would suggest. Companies often lure employees with say, a R8000 monthly travel allowance, and the employee would think he can now buy a R8000 monthly installment car. If you dont regularly travel actual business kms then the allowance is the same as normal salary and you probably will have to pay in a lot of tax at the end of the year.
A Non Blonde
Senior Member
+1000 - take heed of this!
OMB
Mountain Man
a couple of articles worth reading (even though a couple of years old)
http://www.hrfuture.net/reward-finance-tax/changes-to-car-allowances.php?Itemid=271
http://www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page259?oid=44497&sn=Detail
http://www.hrfuture.net/reward-finance-tax/changes-to-car-allowances.php?Itemid=271
http://www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page259?oid=44497&sn=Detail
SuperNev
Well-Known Member
Car allowance is a loose term, there's travel allowance and the 'right of use of motor vehicle' which are 2 separate things.
Travel allowance:
Enough has been mentioned on this above, and I will also stress that you should keep a detailed log book. You have the option of using a tax-free rate, provided you do not anticipate to travel more than 8000 BUSINESS kilometers in the tax period.
'Right of use of motor vehicle
.his is where the employer gives you a company car to use, i.e. a 'car allowance' (see why I said it's a loose term?). This is seen as a fringe benefit (basically a benefit which an employer gives you, which may be taxable, more on this later), and the rules on it are different. The implications are basically that a small percentage of the 'determined value' of the vehicle is added on your salary as a taxable benefit. So the only thing you really need to know here is that it's an extra taxable amount. The employer will do the tax calculations as part of employee tax.
Combination
Following from above, you'll notice that it's possible to get a 'travel allowance' and a 'car allowance'. The employer will give you a car and tell you that it will compensate you for business travel, e.g. to clients and back. The rules are the same for the travel allowance (I'd have to open Tax Act to check) but it gets a bit tricky (well for tax students :twisted
, but for you as an employee you don't have to worry about the intricacies as the employer calculates that.
Hope this, and what everyone else said above helps. Just be aware of the travel allowance vs right of use of motor vehicle
Dear SARS (and my employer). I have in no way procured any consideration for the above, and I duly consider it as merely an explanation and not TAX ADVISE. Thus I disclaim that I am not breaching any terms of my employment, nor do I need to register as a tax consultant
Travel allowance:
Enough has been mentioned on this above, and I will also stress that you should keep a detailed log book. You have the option of using a tax-free rate, provided you do not anticipate to travel more than 8000 BUSINESS kilometers in the tax period.
'Right of use of motor vehicle
.his is where the employer gives you a company car to use, i.e. a 'car allowance' (see why I said it's a loose term?). This is seen as a fringe benefit (basically a benefit which an employer gives you, which may be taxable, more on this later), and the rules on it are different. The implications are basically that a small percentage of the 'determined value' of the vehicle is added on your salary as a taxable benefit. So the only thing you really need to know here is that it's an extra taxable amount. The employer will do the tax calculations as part of employee tax.
Combination
Following from above, you'll notice that it's possible to get a 'travel allowance' and a 'car allowance'. The employer will give you a car and tell you that it will compensate you for business travel, e.g. to clients and back. The rules are the same for the travel allowance (I'd have to open Tax Act to check) but it gets a bit tricky (well for tax students :twisted
, but for you as an employee you don't have to worry about the intricacies as the employer calculates that. Hope this, and what everyone else said above helps. Just be aware of the travel allowance vs right of use of motor vehicle
Dear SARS (and my employer). I have in no way procured any consideration for the above, and I duly consider it as merely an explanation and not TAX ADVISE. Thus I disclaim that I am not breaching any terms of my employment, nor do I need to register as a tax consultant