Page 624 - SAIT Compendium 2016 Volume2

IN 72
Income Tax acT: InTeRPReTaTIon noTes
IN 72
Adjusted value of private use
Less: Consideration
Cash equivalent of the value of the taxable bene t
(that is, the value of the bene t subject to income tax on assessment)
94 500 (12 000) 82 500
4.5.3 Reduction when the employee incurs expenditure in relation to the motor vehicle
An employee who bears the full cost of the licence, insurance or maintenance of the motor vehicle or the full cost of the fuel for the private use of the motor vehicle, may be entitled to a reduction of the value of private use provided the Commissioner is satis ed that accurate records of distances travelled for private purposes have been retained.
The reductions discussed in this paragraph are not applicable if the vehicle is held by the employer under an ‘operating lease’.14
The logbook referred to in 4.5.1 and 4.5.2 is an acceptable record to SARS of private mileage travelled. Note that this reduction can only take place upon assessment for normal tax.
The employee bearing the ‘full cost’ means that the employee must bear 100% of the cost, without any form of reimbursement, for the entire period the employee had the use of the motor vehicle during the year of assessment.
An employee who bears the full cost of the above-mentioned expenses may receive an allowance for the expenditure from his or her employer. The receipt of the allowance does not alter the fact that the employee has borne 100% of the expense. The allowance is fully taxable without any allowable deductions,* however when calculating the value of private use for the company car fringe bene t, an employee may be entitled to claim a deduction if the employee does not receive any reimbursement (full or partial) from the employer.
Licence, insurance and maintenance costs
An employee who bears the full cost of the licence or insurance or maintenance may obtain a reduction for the private element of the relevant full costs incurred by applying a ratio of private mileage travelled over total mileage travelled to the actual costs incurred. Namely:
The expense reduction is subtracted from the value of private use on assessment.
Expense reduction = (private mileage / total mileage) x full cost of licence, insurance or maintenance (as appropriate).
Example 9 – Employee bears part of the maintenance costs
Facts:
Z, an employee of Company Y, has been granted the right to use Company Y’s motor vehicle. Company Y is responsible for all licence, insurance and fuel costs. In relation to maintenance costs, Company Y introduced a company policy aimed at encouraging employees to look after company motor vehicles which stipulates that employees are responsible for any maintenance expenses in excess of R2 000 a year. Z maintains a logbook.
During the 2013 year of assessment, the maintenance costs totalled R2 500. Z agreed with Company Y to pay R500 over ve months with the rst payment of R100 per month due at the end of March 2012.
Result:
Z will not be entitled to a deduction for the R500 because Z has not borne the full cost of maintenance on the company car.
Fuel costs
An employee who carries the full cost of fuel for private purposes is entitled to a reduction for the private element of the fuel cost based on the deemed rate per kilometre for fuel, as xed by the Minister of Finance in the Gazette.† This deemed rate per kilometre is applied to the total private kilometres travelled in the motor vehicle. Namely:
Upon assessment, the private fuel reduction must be deducted from the value of private use. The determination of whether an employee has borne the full cost of fuel only takes place on assessment. The employee is responsible for making this determination (provision is made in the ITR12 income tax return).
* See 4.9.3 which refers to a ‘travel allowance’, but the same principle applies equally to speci c allowances, for example, a maintenance-focussed allowance.
† See Annexure B.
616 saIT comPendIum oF Tax LegIsLaTIon VoLume 2
Private fuel reduction = private mileage x deemed fuel rate per kilometre as per the Gazette.