A taxable benefit must be calculated for the private\domestic use by an employee of a motor vehicle (or vehicles) belonging to the employer. Private use includes travelling between the employee’s place of residence and his place of work, as well as any other private travel.

The value placed on the private use of a motor vehicle is either 3.5% or 3.25% of the vehicle’s Determined Value for each month or part of a month during which the employee was entitled to private use.

• 3.5% p.m. - no maintenance plan included in determined value
• 3.25% p.m. - maintenance plan included in determined value

The Determined Value from 01 March 2015:

The determined value of the vehicle will be the retail market value of the vehicle (as determined by the Minister in a regulation) including VAT borne by the employer and the value of any maintenance plan, but excluding finance charges and interest. This amendment only affects vehicles acquired by the employer or manufactured after that date.

There are no changes with regards to “operating leases”.

The Determined Value before 01 March 2015:

• When the company buys the car:- The original cost of the vehicle, including VAT and the value of a maintenance plan ( if applicable), but excluding finance charges and interest.
• If the company lease the car:- The retail market value or cash value of the car, including VAT and the value of a maintenance plan ( if applicable) at the time the employer first obtained the use of the vehicle.
• When the car is subject to an Operating Lease:- The actual cost to the employer incurred under the operating lease and the cost of fuel in respect of that vehicle.

An operating lease is a rental contract which includes the following conditions:

• The employer must rent the vehicle from a company that is in the business of renting cars
• The vehicle must be available to lease to the general public for a period of less than a month;
• The cost of maintaining the vehicle must be borne by the rental company
• Risk of the loss or damage must not be assumed by the employer

Where the employee has the use of the vehicle for part of a month, the amount of the value for private use, must be determined in the same ratio as the number of days the employee had the use of the vehicle to the total number of days in the month.

The Determined Car Value remains unchanged until the car changes hands and another employee starts to use it. Once the car is handed over to another employee, the Determined Car Value is depreciated at 15% per completed 12 month period from the date the employer first obtained use of the vehicle to the date the employee first obtained use of the vehicle.

Depreciation, on the reducing balance, at 15% p.a. is allowed for each completed period of 12 months calculated from the date on which the employer first obtained the vehicle to the date on which the employee was first granted the use of the vehicle. No further depreciation is allowed during the period that the same employee has the use of that vehicle or subsequently re-uses the vehicle.

In practice, this means that when the employer grants the use of the motor vehicle to employee A, the Determined Value of the vehicle can be depreciated according to the above formula. When the use of the same vehicle is later granted to employee B, the same depreciation rule can be applied. If however that same vehicle is later re-allocated from employee B back to employee A, the time frame allowed for the depreciation reverts back to the date on which employee A first acquired the use of the vehicle. The vehicle will then have the same value as it had originally for employee A.

If the use of the same vehicle is granted to employees A, B, C, D and so on, the depreciation value is recalculated from the date on which the employer first obtained the vehicle to the date on which each of these employees was first granted the use of the vehicle.

The employee can claim private expenses back only on Assessment:

• Business Use: reduce the fringe benefit value pro rata (business km to total km)
• Insurance, licensing or maintenance costs paid by the employee. These will also be pro rata (private km to total km)
• Fuel costs of private use paid in full by employee.

To claim this on assessment, a logbook and proof of expenses must be submitted by the employee.

No value is placed on the private use of the employer’s vehicle in two cases:

• The private use of “pool” cars is tax free, as long as the cars are available to be used by employees in general, and the private use is incidental to the business use. The vehicle should not be kept at or near the residence of the employee when not in use.
• f the employee’s duties require him to use the vehicle regularly outside of working hours, and he is not allowed to use the car for private purposes other than to travel between home and work.

On VIP there are various screens that need to be setup correctly in order for the system to calculate the Fringe Benefit value for the Use of a Company Car.

The first screen is the Company Miscellaneous Screen.

Click on Company

Click on Miscellaneous

Click on Miscellaneous 2

The second screen will be the Taxable Benefits (Perks) Screen for the individual employees.

Click on Payroll

Click on Payslip Screen

Select the applicable employee

Click on Taxable Benefits (Perks) Tab

Click on Company Car button (bottom left)

More than one vehicle can be loaded per employee by using the “ADD” button at the bottom. When the details for a vehicle have been completed, the system will calculate the Cash Equivalent (taxable value).

On the Company Car Percentage Tab the system records the percentages against which the Company Cars were taxed for the Current Pay Period, as well as the preceding 11 months. The Current Pay Period displays what has been set up on the Company Car Tax Screen. The user can amend the percentages for previous Pay Periods by clicking on the “Change Mode” Button at the bottom left of the screen. Any change made to the percentages will force an Average Tax Calculation, ensuring that the Year-to-date Tax is correct. Changes made to percentages on this screen will be recorded in the Audit Trail Report.

EXAMPLE: Fow to calculate the Cash Equivalent on a Company Car:

The employer of Mr A originally acquired a vehicle on 1 March 2018 at a cost of R150 000 (including VAT). Calculate the Cash Equivalent of the value of the taxable benefit to Mr A for the 2019 year of assessment if he was granted the right to use the company car with effect from 1 May 2018.

Original Cost of vehicle: R150 000

Less: Depreciation R 22 500 (R150 000 x 15%)

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= Adjusted Determined Value R127 500

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X 3.5 % (no maintenance plan included in determined value)

= R 4 462.50 per month

X 80% months (employee taxed at 80%)

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= Cash Equivalent = R 3 570.00

A taxable benefit shall be deemed to have been granted where the employer contributes, directly or indirectly, to a medical scheme on behalf of an employee and his/her dependants.

The full employer contribution is taxed as a fringe benefit.

No value is placed on the taxable benefit derived from an employer contributing towards the Medical Scheme of the employee if:

• the employee has retired from that employment by reason of age, ill-health or infirmity (frailty/weakness),
• the payments are made for the dependants of a deceased employee who was in employment at the date of death, or
• the payments are made for the dependants of a former employee who has retired by reason of age, ill-health or other infirmity, after his death.