Page 618 - SAIT Compendium 2016 Volume2

IN 72 Income Tax acT: InTeRPReTaTIon noTes IN 72
regarded as a taxable bene t in the hands of the employee. The value of this bene t is included in the employees’ gross income under paragraph (i) of the de nition of ‘gross income’ in section 1 (1).
Paragraph 2 (b) read with paragraph 7 deals with the cash equivalent of the value of this taxable bene t.
The latest legislative changes to employer-provided motor vehicles (company cars) are effective from 1 March 2013 and are applicable to years of assessment commencing on or after that date (that is, from the 2014 year of assessment).
3. The law
For ease of reference, the relevant sections of the Act relating to the taxation of the company car fringe bene t are quoted in Annexure A.
4. Application of the law
4.1 Taxable bene t
A taxable bene t arises when an employer, or associated institution in relation to the employer, has granted an employee the right of use of a motor vehicle* for private or domestic purposes and such use has been granted –
• free of charge; or
• for a consideration payable by the employee which is less than the value of the private or domestic use.
For a taxable bene t to arise the employee must have been given the right to use the company car for private or domestic purposes. The absence of such private use means a taxable bene t does not arise.
Private use includes travelling between the employee’s place of residence and place of employment unless the employee is a ‘Constitutional Court judge’ or a ‘judge’, as de ned in section 1 of the Judges’ Remuneration and Conditions of Employment Act, 2001. Travel by Constitutional Court judges and judges between their home and the court over which they preside is deemed to be business travel for a state-owned vehicle.
Interpretation Note No. 14 (Issue 3) ‘Allowances, Advances and Reimbursements’ (20 March 2013), discusses and provides examples of what constitutes business travel and private travel. The same principles apply to distances travelled in company cars.
An employee will be deemed to have been granted a taxable bene t if as a result of the employee’s employment, the employer directly or indirectly grants a relative of the employee or another person a bene t, which if granted directly to the employee would have constituted a taxable fringe bene t. In this Note a bene t granted to an employee will include direct and indirect bene ts falling within this category.
4.2 Value of the taxable bene t
The cash equivalent of the value of the taxable bene t, which is included in gross income, is equal to:
4.2.1 Value of private use
The value of private use is equal to –
• where the vehicle is held by the employer other than under an ‘operating lease’:†
Fixed percentage per month x the determined value of the motor vehicle
OR
• where the employer holds the vehicle under an ‘operating lease’:
These aspects are examined in more detail below.
4.3 Fixed percentage per month x determined value
4.3.1 Fixed percentage
The xed percentage is generally 3,5% per month. However, the xed percentage may be reduced to 3,25% of the determined value per month if the motor vehicle was the subject of a maintenance plan when it was acquired by the employer. A maintenance plan is –
• a contractual obligation undertaken by the provider in the ordinary course of trade with the general public;
• to underwrite the costs of all maintenance of that motor vehicle (other than top-up uids, tyres or abuse of the motor
vehicle);
• for a period of at least three years or a distance of 60 000 kilometres, whichever comes rst.
In order for the xed percentage to be reduced, the maintenance plan must commence at the same time that the motor vehicle is acquired by the employer. A motor vehicle is not the subject of a maintenance plan if the maintenance plan is either a top-up or an add-on plan that was taken out after the acquisition of the motor vehicle. In these circumstances the rate of 3,5% must be used.
* A ‘motor vehicle’ includes a motor cycle.
† See 4.4 for a de nition of an ‘operating lease’.
Value of private use less any consideration given by the employee to the employer for the private use (excluding any consideration given for the cost of licences, insurance, maintenance or fuel)
Actual cost incurred under the operating lease + cost of fuel incurred on the same vehicle
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