Page 620 - SAIT Compendium 2016 Volume2

IN 72 Income Tax acT: InTeRPReTaTIon noTes IN 72
• the market value of the motor vehicle at the time when the employer or associated institution rst obtained the motor vehicle or the right of use thereof, if the motor vehicle was acquired or held in any other case.
The original cost includes the cost of add-on items, for example, tow bars, media players, air conditioners, smash-and- grab window tinting and security alarms. The original cost does not include the cost of insurance products such as the monthly service fee for vehicle tracking or roadside assistance.
With effect from 1 March 2011, any VAT borne by an employer must be included in the determined value of the motor vehicle. Any determined value calculation performed after 1 March 2011 will include VAT borne by an employer even if the motor vehicle was acquired before 1 March 2011 and irrespective of the fact that, if applicable, the determined value calculation for previous months did not include VAT. ‘Borne’ means that if VAT was applicable the employer was not entitled to an input tax credit for the related VAT. The VAT component must, however, be excluded if the employer was entitled to a deduction of VAT input tax, for example, if the employer is a car dealer that is a registered VAT vendor.
The determined value of the motor vehicle is reduced when the employee is rst granted the right of use of the motor vehicle 12 months or more after the employer rst acquired the motor vehicle or the right of use thereof. The reduction is by means of a depreciation allowance of 15% according to the reducing-balance method for each completed 12-month period from the date the employer acquired the motor vehicle.
Example 4 – Depreciation allowance
Facts:
An employer, Company XYZ, purchased a motor vehicle for R228 000 (VAT inclusive) on 1 January 2010. An employee who subsequently resigned initially used the motor vehicle. The right of use of the motor vehicle was then granted to another employee, A, on 1 April 2012. Company XYZ was not entitled to a VAT input tax credit on the acquisition of the motor vehicle.
Result:
The ‘determined value’ to be used to calculate the value of the taxable bene t is the original cost to the employer (including VAT) less a depreciation allowance of 15% on the reducing balance method for each completed year that Company XYZ had the motor vehicle. The determined value is calculated as follows:
Original cost on acquisition incl. VAT (1 Jan 2010)
Less: Depreciation allowance: 1 Jan 2010 to 31 Dec 2010 (R228 000 × 15%)
Less: Depreciation allowance: 1 Jan 2011 to 31 Dec 2011 (R193 800 × 15%)
R 228 000 (34 200) 193 800 (29 070)
164 730
Adjusted ‘determined value’
The determined value is not adjusted for depreciation in the 2012 calendar year because the requirement of a completed 12-month period was not met (only three months were completed).VAT is included in the determined value calculation as from 1 March 2011 even though the motor vehicle was purchased before that date because the employer was not entitled to a VAT input tax claim at the time of purchase. For purposes of calculating the determined value, VAT is included in the cost of the motor vehicle and is also subject to the depreciation allowance.
164 730
A motor vehicle that was acquired by an employer from an associated institution in relation to that employer retains its original determined value if the employee concerned had, before the acquisition, enjoyed the right of use of that motor vehicle. The ‘original determined value’ is the determined value that was calculated when the employee rst obtained the right of use of the motor vehicle. The effect of this provision is that the value of private use included in the employee’s gross income will not change.
Example 5 – Employee and motor vehicle both transferred
Facts:
Company ABC is an associated institution in relation to Company DEF. Company ABC acquired a motor vehicle (at a cost of R250 000, including VAT) on 1 March 2010 and immediately granted the right of use of this motor vehicle to its employee, T. Company ABC was not entitled to an input tax claim for the VAT. On 1 June 2012, T was transferred to Company DEF together with this motor vehicle which Company DEF acquired from Company ABC for R140 000.
Result:
The ‘determined value’ for Company ABC at the date T rst obtained the right of use of the motor vehicle was R250 000 (adjusting for the inclusion of VAT as required from 1 March 2011). The determined value will remain R250 000 for Company DEF because T previously enjoyed the use of the motor vehicle under Company ABC, which is an associated institution in relation to Company DEF.
Original cost to the employer
612 saIT comPendIum oF Tax LegIsLaTIon VoLume 2