Page 622 - SAIT Compendium 2016 Volume2

IN 72 Income Tax acT: InTeRPReTaTIon noTes IN 72
Use of the same vehicle by more than one employee
The grant of a right to use a motor vehicle is the fringe bene t that is subject to taxation. An employer who allows more than one employee to use the same motor vehicle for private or domestic purposes is granting each of the employees a right to use the vehicle. Each employee must therefore be taxed on the full value of the bene t as calculated under 4.3 or 4.4 (assuming the no value rules in 4.6 do not apply).
4.4 Vehicle held under an operating lease
The number of vehicles held by employers under ‘operating leases’ has increased. An ‘operating lease’ relates to moveable property and is de ned in section 23A. In order for a vehicle lease arrangement to constitute an ‘operating lease’ the lease arrangement must contain the following elements:
• The employer must lease the vehicle from a lessor in the ordinary course of the lessor’s business (not being a banking,
nancial services or insurance business);
• The vehicle must be available to lease to the general public for a period of less than a month;
• The costs of maintaining the vehicle (including any repairs to the vehicle necessary due to normal wear and tear) must
be borne by the lessor; and
• Subject to the claim a lessor may have against a lessee for failing to take proper care of the vehicle, the risk of loss or
destruction of the vehicle must not be assumed by the lessee.
Any lease which does not satisfy these requirements (for example, a ‘ nance lease’) is not an ‘operating lease’, as de ned.
The value of private use of a vehicle which is held by the employer under an ‘operating lease’ and which was concluded by parties who are not connected persons and who transacted at arm’s length is –
• the actual cost incurred by the employer under the operating lease; and
• the cost of fuel in respect of that vehicle.
In circumstances where the above-mentioned requirements are not met, the xed percentage per month of determined value method must be used to calculate the value of private use (see 4.3).
4.5 Reduction of the value of private use on assessment
The value of private use calculation (that is, xed % per month x determined value of the motor vehicle or actual costs incurred under an ‘operating lease’ plus fuel) is based on the assumption that the motor vehicle is only used for private purposes (the employee does not use it for any business purposes) and that the employer bears all of the operating expenses.
The Act, however, recognises that employees may use the motor vehicle for business purposes and may bear some of the costs associated with the motor vehicles. Accordingly, the Act provides that the value of private use may be reduced in speci c circumstances at the end of the tax year when the employee submits a tax return and is assessed – see 4.5.1 – 4.5.3.
None of these reductions may reduce the value of private use to a value which is less than zero.
4.5.1 Right of use of more than one motor vehicle for private purposes
An employer may grant an employee the right to use more than one motor vehicle at the same time. Each motor vehicle represents a separate taxable fringe bene t and on a monthly basis the employer will have to calculate the value of the taxable bene t for each motor vehicle, as discussed in 4.3 and 4.4, for employees’ tax purposes (see 4.8).
However, if the Commissioner is satis ed that during the year of assessment the employee used each motor vehicle primarily for business purposes, the value of private use on all the motor vehicles will be deemed to be that of only the vehicle having the highest value of private use or such other motor vehicle as the Commissioner may direct. ‘Primarily for business purposes’ means that more than 50% of the total distance travelled during the tax year in the motor vehicle concerned was for business purposes. This reduction is claimed in the tax return and is not available if the employee applies the business use or expense reductions in 4.5.2 or 4.5.3.
In order to qualify for this reduction, employees must maintain actual records of business travel, generally done in the form of a logbook.
Example 7 – Employee has the use of more than one company car
Facts:
Company ABC provided one of its employees, Z, with the use of a company car in 2009. During the 2013 tax year, Z had the use of the motor vehicle for the full year but was also granted the use of a new company car on 15 February 2013. The 2009 company car cost Company ABC R200 000 (including VAT). Z travelled 8 000 km during the 2013 year of which 6 500 km were for business purposes. The 2013 company car cost Company ABC R300 000 (including VAT). Z travelled 500 km during the month of February of which 300 km were for business purposes. Company ABC is not entitled to an input tax claim for VAT. Z maintains a logbook detailing business-related travel.
Result:
The 2009 company car was used 81% for business purposes (6 500 km / 8 000 km) and the 2013 company was used 60% for business purposes (300 km / 500 km).
On the basis that accurate logbooks were kept and that both motor vehicles were primarily used for business purposes, at year-end when submitting a tax return, Z may elect to calculate the cash equivalent of the taxable value of the bene t for both motor vehicles on the highest calculated value of private use of the two motor vehicles. Z may, however, only do this if the business reduction (see 4.5.2) or cost reduction (see 4.5.3) alternatives are not applied. Value of private use for February 2013
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