TAX BLOG

Right of use of vehicle (Company car)

Monthly Fringe Benefit

Usage of a Company motor vehicle by an employee is subject to tax. It will be added as a monthly fringe benefit of 3.5% of the determined value of the vehicle.
When the vehicle is covered by a maintenance plan, the monthly fringe benefit will be reduced to 3.25%.
The determined value is reduced when the employee contributes to the usage of the vehicle. This does not apply to payments of fuel, licence, insurance and maintenance.
When more than one vehicle is granted primarily for business use, the fringe benefit tax only applies to the vehicle with the highest value of private use.
For the fringe benefit to be reduced, proof of business use will have to be provided by the employee. This however, cannot be processed by the employer, but only upon assessment of the employee’s taxes.
The employer has the option to base the employee’s tax on 80% or 20% of the value of the fringe benefit.

 

Determined value

When the motor vehicle is owned by the employer, the determined value will be the original cost of the vehicle including VAT, but excluding finance charges or interest.
When the motor vehicle is leased by the employer, the determined value will be the retail market value when the employer first obtained right of use of the vehicle. When the lease is an “Instalment Credit Agreement”, the determined value will be the “cash value” as stated in the VAT act.
In any other scenario, the determined value will be the market value of the vehicle when the employer first obtained the right of use of vehicle.


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