Travel allowances and company cars are common employee benefits in South Africa, but they come with specific tax implications under SARS regulations. These benefits are classified as fringe benefits and attract fringe benefit tax, which affects both employers and employees. Understanding how these allowances and company cars are taxed is essential for compliance and effective tax planning.
What is a Fringe Benefit?
A fringe benefit is a non-cash benefit provided to employees as part of their remuneration package. SARS requires employers to include the value of certain benefits in the employee’s taxable income, which is subject to Pay-As-You-Earn (PAYE) withholding tax.
Travel Allowances
Travel allowances are payments made to employees to cover work-related travel expenses. SARS has specific rules on how travel allowances are taxed:
- The allowance is included in the employee’s gross income and subject to tax.
- Employees can claim deductions for business kilometers traveled using the prescribed rates.
- Only the portion of the allowance used for business travel is deductible; personal travel is not.
- The employer must report the allowance and deduct PAYE accordingly.
Company Cars
When an employer provides a company car to an employee, SARS regards this as a fringe benefit. The taxable value of the benefit is determined by:
- The determined value of the vehicle, usually the retail market value when new.
- The percentage prescribed by SARS (typically 3.5% per month of the determined value).
- Adjustments for private versus business use, supported by logbooks or agreements.
- Any contributions made by the employee towards the car’s use.
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Calculating the Fringe Benefit Tax on Company Cars
- Calculate 3.5% of the vehicle’s determined value per month to get the monthly taxable value.
- Multiply by 12 for annual taxable value.
- Reduce the value proportionally if the employee pays for business kilometers or contributes towards the vehicle costs.
- Include this amount as a fringe benefit on the employee’s IRP5 for PAYE purposes.
Record-Keeping and Compliance
- Maintain detailed logbooks showing business and private travel.
- Document any employee contributions or reimbursements related to the vehicle or travel allowance.
- Ensure accurate PAYE deductions and reporting in payroll systems.
- Review SARS guidelines regularly to stay compliant with changing rules.
Tax Planning Tips
- Employees should keep meticulous records of travel to claim legitimate deductions.
- Employers can structure benefits to optimize tax efficiency for employees.
- Consider alternative remuneration packages to reduce fringe benefit tax exposure.
Conclusion
Understanding the taxation of travel allowances and company cars as fringe benefits helps both employers and employees comply with SARS requirements and manage their tax liabilities effectively. Proper documentation, accurate calculations, and timely reporting are key to avoiding penalties and optimizing benefits.
For personalized guidance on fringe benefit tax, travel allowances, and company car taxation in South Africa, consult expert tax professionals.
