Payroll taxes: Company motor vehicles and travel allowances
A client recently enquired what the payroll tax consequences will be if:
- they register the company cars in their employees’ names, so each employee is responsible for a specific car and
- a travel allowance is subsequently paid by the employer to the employee for business kilometers travelled with the car?
1) Register vehicles in the name of the employees:
The employees’ must be taxed on a fringe benefit in the month the vehicles are registered in their names, as it is seen as an acquisition of an asset at less than the actual value. Paragraphs 2(a) and 5 of the Seventh Schedule to the Income Tax Act are applicable.
A taxable benefit shall be deemed to have been granted if any asset consisting of any goods, commodity, financial instrument or property of any nature (other than money) is acquired by an employee from:
- the employer, or
- any associated institution, or
- from any person by arrangement with the employer,
for no consideration or for a consideration less than the value of the asset.
The value to be placed on the asset is the market value thereof, on the date the employee acquired the asset less any amount paid by the employee for the vehicle. This value must be included with remuneration when the monthly employee’s tax is calculated.
Payroll tax (PAYE) must be deducted in the month which the employee acquires the asset. If the amount of payroll taxes to be deducted is excessive in relation to the employee’s remuneration for that month, the deduction of the tax in respect of the benefit may be spread over the balance of the tax year during which the benefit accrued to the employee.
The cash equivalent of the benefit must be reflected under code 3801.
2) Vehicle used for business travel:
When the vehicle becomes the property of the employee who uses it for business travel, the employer can either reimburse the employee for business travel or alternatively pay a travel allowance. Sections 8(1)(a)(i)(aa), 8(1)(a)(ii) and 8(1)(b) are applicable.
Reimburse business travel: If the re-imbursement is based on more than 8 000 km’s or the applicable rate per km is more than the prescribed rate, the re-imbursement will be taxable when the employee submits his / her tax return. The employee will also have to submit a detailed day-to-day logbook in such an instance.
IRP5 code must be used 3703 (if no travel allowance and only re-imbursement) or 3702 (if a travel allowance and re-imbursement is granted). The employer is not required to deduct any payroll tax from these amounts during the year.
Pay a travel allowance: the employer must only calculate PAYE on 80% of the travel allowance during the tax year. When the employee submits his / her tax return the full travel allowance will be taxable. The employee will have to claim against the travel allowance to prevent any tax liability.
To claim against the travel allowance, the employee must have a detailed day-to-day logbook as well as the purchase agreement of the vehicle. IRP5 code 3701 must be used and if there is also a reimbursive portion, code 3702.
If you have any enquiries, please contact Petri Westraadt at pwestraadt@bkaudit.co.za.dedi1019.jnb1.host-h.net
Source Reference:
Income Tax Act No. 58 of 1962
SARS Interpretation Note 14 (Issue 3)